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A  History  of  Money 

From  Ancient  Times  to  the  Present  Day 

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A  History  of  Money 

From  Ancient  Times  to  the  Present  Day 


Published  in  co-operation  with 
Julian  Hodge  Bank  Limited 


©  Glyn  Davies,  2002 

First  edition,  1994 
Reprinted,  1995 

Second  edition,  in  paperback  with  revisions  and  Postcript,  1996 
Reprinted,  1997 

Third  edition,  with  revisions,  2002 

All  rights  reserved.  No  part  of  this  book  may  be  reproduced,  stored  in  a 
retrieval  system,  or  transmitted,  in  any  form  or  by  any  means,  electronic, 
mechanical,  photocopying,  recording  or  otherwise,  without  clearance  from 
the  University  of  Wales  Press,  10  Columbus  Walk,  Brigantine  Place,  Cardiff 
CF10  4UP. 

www.  wales,  ac.  uk/ press 

British  Library  Cataloguing  in  Publication  Data 

A  catalogue  record  for  this  book  is  available  from  the  British  Library 

ISBN  0-7083-1773-1  hardback 
0-7083-1717-0  paperback 

The  right  of  Glyn  Davies  to  be  identified  as  author  of  this  work  has  been 
asserted  by  him  in  accordance  with  the  Copyright,  Design  and  Patents  Act 

Cover  design  by  Neil  James  Angove 

Cover  illustrations:  Barclaycard  reproduced  with  permission  of  Barclays 
Bank;  tally  sticks  with  permission  of  the  Public  Record  Office;  cowrie  shell 
and  'owl'  of  Athens  with  permission  of  the  Ancient  Art  &  Architecture 
Collection;  five  million  mark  note  with  permission  of  Mary  Evans  Picture 

Typeset  in  Wales  at  the  University  of  Wales  Press,  Cardiff 

Printed  and  bound  in  Great  Britain  by  Creative  Print  and  Design,  Ebbw  Vale 


From  earliest  times  money  in  some  form  or  another  has  been  central  to 
organized  living.  Increasingly  it  shapes  foreign  and  economic  policies  of 
all  governments.  It  is  synonymous  with  power  and  it  shapes  history  in 
every  generation. 

Professor  Glyn  Davies,  Economic  Adviser  to  the  Julian  Hodge  Bank 
Ltd,  and  sometime  Chief  Economic  Adviser  to  the  Secretary  of  State  for 
Wales,  and  then  to  the  Bank  of  Wales,  is  an  ideal  person  to  write  the 
history  of  money  itself.  In  his  fifteen  years  as  Sir  Julian  Hodge  Professor 
of  Banking  and  Finance  at  the  University  of  Wales  Institute  of  Science 
and  Technology,  Glyn  Davies  earned  worldwide  recognition  as  one  of 
the  United  Kingdom's  front  line  economists.  Both  the  CBI  and  various 
Select  Committees  of  the  House  of  Commons  have  sought  his  help. 

For  over  two  decades  there  has  been  a  unique  partnership  between 
Wales's  financial  wizard,  Sir  Julian  Hodge,  and  Professor  Glyn  Davies. 
The  genius  of  Sir  Julian  is  matched  by  his  intuitive  caution  in  matters 
financial:  it  is  therefore  a  high  tribute  to  Professor  Glyn  Davies  that  for 
two  decades  he  has  been  Sir  Julian  Hodge's  trusted  Economic  Adviser. 

This  book  is  a  masterpiece  of  scholarly  research  which  economists 
and  bankers  will  find  invaluable.  Professor  Glyn  Davies  enjoys  a  rare 
gift  in  being  able  to  present  the  most  complicated  issues  in  clear  and 
simple  terms. 

I  declare  my  personal  interest  in  this  book  because  I  have  proved  the 
quality  of  Professor  Glyn's  work  both  when  I  served  as  Secretary  of 
State  for  Wales  and  when  I  was  Chairman  of  the  Bank  of  Wales. 

George  Tonypandy 
The  Right  Honourable  Viscount  Tonypandy  PC,  DCL, 

House  of  Lords,Westminster 


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Sir  Julian  Hodge  LLD 
Merchant  banker  and  philanthropist 

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Foreword  by  George  Thomas,  The  Right  Honourable  Viscount 

Tonypandy  v 

Dedication  vii 

Acknowledgements  xv 

Preface  to  the  third  edition  xvii 

The  importance  of  money  1 
Sovereignty  of  monetary  policy  3 
Unprecedented  inflation  of  population  5 
Barter:  as  old  as  the  hills  9 
Persistence  of  gift  exchange  11 
Money:  barter's  disputed  paternity  13 
Modern  barter  and  countertrading  18 
Modern  retail  barter  21 
Primitive  money:  definitions  and  early  development  23 
Economic  origins  and  functions  27 
The  quality-to-quantity  pendulum:  a  metatheory  of  money  29 

INVENTION  OF  COINAGE,  3000-600  bc  34-65 

Pre-metallic  money  34 

The  ubiquitous  cowrie  36 

Fijian  whales'  teeth  and  Yap  stones  37 

Wampum:  the  favourite  American-Indian  money  39 

Cattle:  man's  first  working-capital  asset  42 

Pre-coinage  metallic  money  45 

Money  and  banking  in  Mesopotamia  48 

Girobanking  in  early  Egypt  52 



Coin  and  cash  in  early  China  55 

Coinage  and  the  change  from  primitive  to  modern  economies  58 

The  invention  of  coinage  in  Lydia  and  Ionian  Greece  61 


MONEY,  600  bc-ad  400  66-112 

The  widening  circulation  of  coins  66 

Laurion  silver  and  Athenian  coinage  68 

Greek  and  metic  private  bankers  71 

The  Attic  money  standard  74 

Banking  in  Delos  78 

Macedonian  money  and  hegemony  79 

The  financial  consequences  of  Alexander  the  Great  82 

Money  and  the  rise  of  Rome  87 

Roman  finance,  Augustus  to  Aurelian,  14  BC-AD  275  94 

Diocletian  and  the  world's  first  budget,  284-305  100 

Finance  from  Constantine  to  the  Fall  of  Rome  106 

The  nature  of  Graeco-Roman  monetary  expansion  109 

EUROPEAN  MONEY,  410-1485  113-75 

Early  Celtic  coinage  113 

Money  in  the  Dark  Ages:  its  disappearance  and  re-emergence  117 

The  Canterbury,  Sutton  Hoo  and  Crondall  finds  118 

From  sceattas  and  stycas  to  Offa's  silver  penny  123 

The  Vikings  and  Anglo-Saxon  recoinage  cycles,  789-978  128 

Danegeld  and  heregeld,  978-1066  131 

The  Norman  Conquest  and  the  Domesday  Survey,  1066-1087  134 

The  pound  sterling  to  1272  139 

Touchstones  and  trials  of  the  Pyx  144 

The  Treasury  and  the  tally  147 

The  Crusades:  financial  and  fiscal  effects  153 

The  Black  Death  and  the  Hundred  Years  War  160 

Poll  taxes  and  the  Peasants'  Revolt  167 

Money  and  credit  at  the  end  of  the  Middle  Ages  169 


1485-1640  176-237 

What  was  new  in  the  new  era?  176 



Printing:  a  new  alternative  to  minting  178 

The  rise  and  fall  of  the  world's  first  paper  money  181 

Bullion's  dearth  and  plenty  184 

Potosi  and  the  silver  flood  188 

Henry  VII:  fiscal  strength  and  sound  money,  1485-1509  190 

The  dissolution  of  the  monasteries  194 

The  Great  Debasement  198 

Recoinage  and  after:  Gresham's  Law  in  Action,  1560-1640  203 

The  so-called  price  revolution  of  1540-1640  212 

Usury:  a  just  price  for  money  218 

Bullionism  and  the  quantity  theory  of  money  223 

Banking  still  foreign  to  Britain?  233 

BANKING,  1640-1789  238-83 

Bank  money  supply  first  begins  to  exceed  coinage  238 

From  the  seizure  of  the  mint  to  its  mechanization,  1640-1672  240 

From  the  great  recoinage  to  the  death  of  Newton,  1696-1727  245 

The  rise  of  the  goldsmith-banker,  1633-1672  248 

Tally-money  and  the  Stop  of  the  Exchequer  252 

Foundation  and  early  years  of  the  Bank  of  England  255 

The  national  debt  and  the  South  Sea  Bubble  263 

Financial  consequences  of  the  Bubble  Act  267 

Financial  developments  in  Scotland,  1695-1789  272 

The  money  supply  and  the  constitution  279 

7  THE  ASCENDANCY  OF  STERLING,  1789-1914  284-366 
Gold  versus  paper  .  .  .  finding  a  successful  compromise  284 
Country  banking  and  the  industrial  revolution  to  1826  286 
Currency,  the  bullionists  and  the  inconvertible  pound,  1783-1826  293 
The  Bank  of  England  and  the  joint-stock  banks,  1826-1850  304 

The  Banking  Acts  of  1826  306 

The  Bank  Charter  Act  1833  309 

Currency  School  versus  Banking  School  311 

The  Bank  Charter  Act  of  1844:  rules  plus  discretion  314 

Amalgamation,  limited  liability  and  the  end  of  unit  banking  316 

The  rise  of  working-class  financial  institutions  323 
Friendly  societies,  unions,  co-operatives  and  collecting  societies  323 

The  building  societies  327 



The  savings  banks:  TSB  and  POSB  333 

The  discount  houses,  the  money  market  and  the  bill  on  London  340 

The  merchant  banks,  the  capital  market  and  overseas  investment  345 

The  final  triumph  of  the  full  gold  standard,  1850-1914  355 

Gold  reserves,  tallies  and  the  constitution  365 


Introduction:  a  century  of  extremes  367 

Financing  the  First  World  War,  1914-1918  368 

The  abortive  struggle  for  a  new  gold  standard,  1918-1931  375 

Cheap  money  in  recovery,  war  and  reconstruction,  1931-1951  384 
Inflation  and  the  integration  of  an  expanding  monetary  system, 

1951-1990  397 

A  general  perspective  on  unprecedented  inflation,  1934-1990  397 

Keynesian  'ratchets'  give  a  permanent  lift  to  inflation  399 

Filling  the  financial  gaps  405 

Stronger  competition  and  weaker  credit  control  408 
The  American-led  invasion  and  the  Eurocurrency  markets  in 

London  414 

The  monetarist  experiment,  1973-1990  421 

The  secondary  banking  crisis:  causes  and  consequences  421 

Supervising  the  financial  system  425 

Thatcher  and  the  medium-term  financial  strategy  431 

EMU:  the  end  of  the  pound  sterling?  443 

Introduction:  the  economic  basis  of  the  dollar  457 
Colonial  money:  the  swing  from  dearth  to  excess,  1700-1775  458 
The  official  dollar  and  the  growth  of  banking  up  to  the  Civil 

War,  1775-1861  466 

'Continental'  debauchery  466 

The  constitution  and  the  currency  468 

The  national  debt  and  the  bank  wars  471 

A  banking  free-for-all,  1833-1861  479 

From  the  Civil  War  to  the  founding  of  the  'Fed',  1861-1913  487 

Contrasts  in  financing  the  Civil  War  487 

Establishing  the  national  financial  framework  490 

Bimetallism's  final  fling  494 


XI 11 

From  gold  standard  to  central  bank(s),  1900-1913  499 

The  banks  through  boom  and  slump,  1914-1944  504 

The  'Fed'  finds  its  feet,  1914-1928  504 

Feet  of  clay,  1928-1933  509 

Banking  reformed  and  resilient,  1933-1944  512 

Bretton  Woods:  vision  and  realization,  1944-1991  517 

American  banks  abroad  525 

From  accord  to  deregulation,  1951-1980  530 
Hazardous  deposit  insurance  for  thrifts,  banks  .  .  .  and 

taxpayers  535 

From  unit  banking  ...  to  balkanized  banking  539 
Summary  and  conclusion:  from  beads  to  banks  without  barriers  546 

AND  JAPAN  549-95 

Introduction:  banking  expertise  shifts  northward  549 

The  rise  of  Dutch  finance  550 

The  importance  of  the  Bank  of  Amsterdam  550 

The  Dutch  tulip  mania,  1634-1637  551 

Other  early  public  banks  554 

France's  hesitant  banking  progress  555 
German  monetary  development:  from  insignificance  to 

cornerstone  of  the  EMS  567 

The  monetary  development  of  Japan  since  1868  582 
Introduction:  the  significance  of  banks  in  Japanese 

development  582 

Westernization  and  adaption,  1868-1918  583 

Depression,  recovery  and  disaster,  1918-1948  587 

Resurgence  and  financial  supremacy,  1948-1990  590 
Stagnation  and  the  limitations  of  monetary  policy,  1990-2002  594 


Introduction:  Third  World  poverty  in  perspective  596 

Stages  in  the  drive  for  financial  independence  601 
Stage  1:  Laissez-faire  and  the  Currency  Board  System, 

c.1880-1931  603 
Stage  2:  The  sterling  area  and  the  sterling  balances, 

1931-1951  607 



Stage  3:  Independence,  planning  euphoria  and  banking 

mania,  1951-1973  610 

Stage  4:  Market  realism  and  financial  deepening,  1973-1993  616 

The  Nigerian  experience  616 

Impact  of  the  Shaw-McKinnon  thesis  619 

Contrasts  in  financial  deepening  622 

Third  World  debt  and  development:  evolution  of  the  crisis  632 

Conclusion:  reanchoring  the  runaway  currencies  639 

Long-term  swings  in  the  quality/quantity  pendulum  642 
The  military  and  developmental  money-ratchets  646 
Free  trade  in  money  in  a  global,  cashless  society?  649 
Independent  multi-state  central  banking  652 
Conclusion:  'Money  is  coined  liberty'  655 


The  epoch-making  euro  660 

More  coins  in  an  increasingly  cashless  society  667 

The  paradox  of  coin:  rising  production  -  falling  significance  669 

Speculation  and  the  Tobin  Tax  674 

The  end  of  inflation?  679 

Bibliography  684-702 

Index  703-20 

A  cknowledgements 

First  and  foremost  I  wish  to  thank  Sir  Julian  Hodge  for  his  unfailing 
support  and  encouragement.  For  over  a  quarter  of  a  century  I  have  been 
fortunate  in  being  able  to  observe  at  close  quarters  Sir  Julian's  genius 
for  making  money  -  and  for  making  money  do  good.  As  an  economist  I 
have  particularly  enjoyed  the  opportunities  provided  by  such 
experiences  to  analyse  how  far  abstract  theories  stand  up  in 
comparison  with  the  practical  tests  of  the  market  place.  My  grateful 
thanks  are  also  offered  to  Eric  Hammonds,  Chairman,  and  Jonathan 
Hodge,  Director,  Julian  Hodge  Bank  Ltd.,  and  to  Venetia  Farrell  of  the 
Jane  Hodge  Foundation. 

To  the  late  and  sadly  missed  Viscount  Tonypandy  I  remain  greatly 
indebted  for  his  typically  kind  and  prompt  response  in  having  written 
the  Foreword  in  his  unique,  incisive  style. 

The  academic  sources  on  which  I  have  drawn  are  widely  spread  over 
time  and  space  and  include,  for  the  more  recent  decades,  colleagues  and 
former  students.  Only  to  a  small  degree  can  such  debts  be  indicated  in 
the  bibliography.  To  the  many  librarians  who  have  made  essential 
material  easily  and  pleasantly  available  to  me  I  am  glad  to  record  my 
thanks,  especially  to  Ken  Roberts  of  the  University  of  Wales  Library, 
Cardiff,  and  to  my  son  Roy  Davies,  of  Exeter  University  Library,  whose 
mastery  of  the  Web  proved  invaluable. 

The  staff  of  the  Royal  Mint  and  scores  of  practising  bankers,  building 
society  executives,  accountants  and  civil  servants  who  have  generously 
given  of  their  time  to  discuss  matters  of  financial  interest  similarly 
deserve  my  gratitude. 



My  warm  thanks  go  to  Ned  Thomas,  former  Director  of  the 
University  of  Wales  Press,  to  his  successor,  Susan  Jenkins,  to  Richard 
Houdmont,  Deputy  Director,  to  Liz  Powell,  Production  and  Design 
Manager,  and  to  all  the  staff,  including  especially  Ceinwen  Jones, 
Editorial  Manager,  who  have  worked  most  expeditiously  and  with 
highly  commendable  skill  and  zeal  on  my  behalf.  Despite  such 
enthusiastic  professional  assistance  any  errors  remaining  are  my  own. 

Finally,  the  long-suffering  and  devoted  support  of  my  wife,  Anna 
Margrethe,  is  beyond  praise. 

Preface  to  the  Third  Edition 

In  our  technological  age  too  many  agree  with  Henry  Ford's  blunt 
dictum  that  history  is  bunk,  though  he  was  far  from  thinking  that 
money  was  bunk.  This  ambivalent  attitude  remains  prevalent  today  in 
the  general  approach  to  economic  and  financial  studies,  so  that  whereas 
there  is  a  superabundance  of  books  on  present-day  monetary  and 
financial  problems,  politics  and  theories,  it  is  my  contention  first  that 
monetary  histories  are  far  too  scarce  and  secondly  that  those  which  do 
exist  tend  in  the  main  to  be  far  too  narrow  in  scope  or  period. 

Because  of  the  difficulties  of  conducting  'experiments'  in  the 
ordinary  business  of  economic  life,  at  the  centre  of  which  is  money,  it  is 
most  fortunate  that  history  not  only  generously  provides  us  with  a 
potentially  plentiful  proxy  laboratory,  a  guidebook  of  more  or  less 
relevant  alternatives,  but  also  enables  us  to  satisfy  a  natural  curiosity 
about  the  key  role  played  by  money,  one  of  the  oldest  and  most 
widespread  of  human  institutions.  Around  the  next  corner  there  may  be 
lying  in  wait  apparently  quite  novel  monetary  problems  which  in  all 
probability  bear  a  basic  similarity  to  those  that  have  already  been 
tackled  with  varying  degrees  of  success  or  failure  in  other  times  and 
places.  Yet  despite  the  antiquity  and  ubiquity  of  money  its  proper 
management  and  control  have  eluded  the  rulers  of  most  modern  states 
partly  because  they  have  ignored  the  wide-ranging  lessons  of  the  past  or 
have  taken  too  blinkered  and  narrow  a  view  of  money. 

Economists,  and  especially  monetarists,  tend  to  overestimate  the 
purely  economic,  narrow  and  technical  functions  of  money  and  have 
placed  insufficient  emphasis  on  its  wider  social,  institutional  and 
psychological  aspects.  However,  as  is  shown  in  this  study,  money 



originated  very  largely  from  non-economic  causes:  from  tribute  as  well 
as  from  trade,  from  blood-money  and  bride-money  as  well  as  from 
barter,  from  ceremonial  and  religious  rites  as  well  as  from  commerce, 
from  ostentatious  ornamentation  as  well  as  from  acting  as  the  common 
drudge  between  economic  men.  Even  in  modern  circumstances  money 
still  yields  powerfully  important  psychic  returns  (such  as  an  individual's 
social  rank  and  standing  or  a  nation's  position  in  the  GNP  league 
table),  while  the  eagerness  to  save  or  to  spend  is  a  fickle,  moody, 
contagious,  psychological  characteristic,  not  fully  captured  in  the 
economist's  statistics  on  velocity  of  circulation.  Thus  money,  more  than 
ever  in  our  monetarist  era,  needs  to  be  widely  interpreted  to  include 
discussion  not  only  of  currency  and  banking,  but  also  savings  banks, 
building  societies,  hire  purchase  finance  companies  and  the  fiscal 
framework  on  those  not  infrequent  occasions  when  fiscal  policy 
conflicts  with  or  complements  the  operation  of  monetary  policy.  In  this 
regard  it  is  demonstrated  that  even  in  medieval  and  earlier  periods  these 
wider  aspects  were  of  considerably  greater  importance  than  is 
conventionally  believed.  There  are  therefore  many  advantages  which 
can  only  be  obtained  by  tracing  monetary  and  financial  history  with  a 
broad  brush  over  the  whole  period  of  its  long  and  convoluted 
development,  where  primitive  and  modern  moneys  have  overlapped  for 
centuries  and  where  the  logical  and  chronological  progressions  have 
rarely  followed  strictly  parallel  paths. 

Anyone  who  attempts  to  cover  such  a  wide  range  inevitably  lays  him- 
or  herself  open  to  criticisms  similar  to  those  inescapably  faced  by  map- 
makers  in  attempting  to  portray  the  whole  or  a  major  part  of  the  globe 
on  a  flat  surface.  If  the  directions  are  right  the  sizes  of  the  various 
countries  become  grossly  disproportional;  attempts  at  equal  areas  beget 
other  distortions  in  shape  or  direction;  while  the  currently  politically 
correct  Peters  projection  looks  like  nothing  on  earth.  Similar  criticisms 
relate  to  the  selection  of  historical  material  from  the  vast  mass  currently 
available.  What  some  experts  would  regard  as  vitally  important  features 
may  have  been  glossed  over  or  omitted,  while  other  aspects  which  they 
might  consider  trivial  have  been  given  undue  attention.  Selection  from 
such  a  vast  menu  is  bound  to  be  arbitrary,  depending  on  the  personal 
taste  of  the  author.  Furthermore  any  claim  to  complete  neutrality  and 
unbiased  objectivity  is  similarly  bound  to  be  untenable.  Every  list  of 
sins  of  commission  or  omission  would  vary,  especially  among 
economists  .  .  .  six  economists,  at  least  half  a  dozen  opinions. 

A  further  point:  where  one  is  dealing  with  a  narrower,  more 
manageable  period  or  area  it  is  all  the  more  possible  (and  highly 
fashionable)  to  construct  a  sophisticated  model  or  theory  closely  fitting 



the  subject  under  scrutiny.  Conversely,  only  the  most  loose-fitting  (but 
none  the  less  useful)  garment  could  possibly  cover  the  variety  of  models 
comprising  such  a  wide  range  as  is  examined  in  this  book.  One  such 
simple  theory  does,  however,  emerge:  the  quality-quantity  pendulum; 
although  it  must  be  borne  in  mind  that  its  repetitional  swings  become 
discernible  only  where  a  long  period  of  time  is  taken  into  consideration. 

The  first  three  chapters  look  at  primitive  and  ancient  money  and  at 
the  origins  of  coined  money  and  its  development  up  to  the  fall  of  Rome. 
The  next  two  chapters  look  at  the  unique  disappearance  and  re- 
emergence  of  coined  money  in  medieval  Britain,  followed  by  the  great 
expansion  of  trade  and  finance  in  Britain  and  Europe  from  around  1485 
to  1650.  We  then  trace  the  development  of  British  money  and  banking 
to  its  dominant  position  in  the  gold  standard  system  that  eventually 
broke  down  in  the  period  from  1914  to  1931,  thereafter  analysing  the 
monetary  controversies  during  the  rest  of  the  twentieth  century 
including  the  implications  of  entry  into  the  European  Monetary 
System.  The  monetary  development  of  the  USA  (in  chapter  9)  provides 
a  considerable  contrast,  moving  from  wampum  to  world  power  in  less 
that  two  centuries.  Only  a  few  of  the  salient  features  of  money  and 
banking  in  parts  of  continental  Europe  and  Japan  are  sketched  in 
chapter  10  but  with  some  emphasis  being  given  to  the  closer 
relationships  seen  in  those  countries  between  financial  and  industrial 
companies  and  the  consequences  that  this  might  have  for  a  faster  rate  of 
economic  growth  than  has  occurred  elsewhere.  Chapter  11  deals  with 
pre-  and  post-colonial  monetary  systems,  the  rise  of  indigenous 
banking  in  the  Third  World  and  the  vast  problems  of  international 
indebtedness.  Chapters  12  and  13  summarize  progress  towards  a 
possible  universal  free  market  in  money,  including  dollarization,  the 
revolutionary  advance  of  the  euro  and  the  controversial  Tobin  Tax. 

Henry  Ford,  the  father  of  mass  production,  unconsciously  gave  the 
world  a  powerful  push  towards  the  goal  of  global  finance  where 
eventually  the  colour  of  everyone's  money  will  be  the  same.  Fortunately, 
that  blissful  day  has  not  quite  yet  dawned. 

1  June  2002 

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The  Nature  and  Origins  of  Money 
and  Barter 

The  importance  of  money 

Perhaps  the  most  common  claim  with  regard  to  the  importance  of 
money  in  our  everyday  life  is  the  morally  neutral  if  comically 
exaggerated  claim  that  'money  makes  the  world  go  round'.  Equally 
exaggerated  but  showing  a  deeper  insight  is  the  biblical  warning  that 
'the  love  of  money  is  the  root  of  all  evil',  neatly  transformed  by  George 
Bernard  Shaw  into  the  fear  that  it  is  rather  the  lack  of  money  which  is 
the  root  of  all  evil.  However,  whether  it  is  the  love  or  conversely  the  lack 
of  money  which  is  potentially  sinful,  the  purpose  of  the  statement  in 
either  case  is  to  underline  the  overwhelming  personal  and  moral 
significance  of  money  to  society  in  a  way  that  gives  a  broader  and 
deeper  insight  into  its  importance  than  simply  stressing  its  basically 
economic  aspects,  as  when  we  say  that  'money  makes  the  world  go 
round'.  Consequently  whether  we  are  speaking  of  money  in  simple,  so- 
called  primitive  communities  or  in  much  more  advanced,  complex  and 
sophisticated  societies,  it  is  not  enough  merely  to  examine  the  narrow 
economic  aspects  of  money  in  order  to  grasp  its  true  meaning.  To 
analyse  the  significance  of  money  it  must  be  broadly  studied  in  the 
context  of  the  particular  society  concerned.  It  is  a  matter  for  the  heart 
as  well  as  for  the  head:  feelings  are  reasons,  too. 

Money  has  always  been  associated  in  varying  degrees  of  closeness 
with  religion,  partly  interpreted  in  modern  times  as  the  psychology  of 
habits  and  attitudes,  hopes,  fears  and  expectations.  Thus  the  taboos 
which  circumscribe  spending  in  primitive  societies  are  basically  not 
unlike  the  stock  market  bears  which  similarly  reduce  expenditures 
through  changing  subjective  assessments  of  values  and  incomes,  so  that 



the  true  interpretation  of  what  money  means  to  people  requires  the 
sympathetic  understanding  of  the  less  obvious  motivations  as  much  as, 
if  not  more  than,  the  narrow  abstract  calculations  of  the  computer.  To 
concentrate  attention  narrowly  on  'the  pound  in  your  pocket'  is  to 
devalue  the  all-pervading  significance  of  money. 

Personal  attitudes  to  money  vary  from  the  disdain  of  a  small 
minority  to  the  total  preoccupation  of  a  similarly  small  minority  at  the 
other  extreme.  The  first  group  paradoxically  includes  a  few  of  the  very 
rich  and  of  the  very  poor.  Sectors  of  both  are  unconsciously  united  in 
belittling  its  significance:  the  rich  man  either  because  he  delegates  such 
mundane  matters  to  his  servants  or  because  the  fruits  of  compound 
interest  exceed  his  appetite,  however  large;  the  poor  man  because  he 
makes  a  virtue  out  of  his  dire  necessity  and  learns  to  live  as  best  he  can 
with  the  very  little  money  that  comes  his  way,  so  that  his  practical 
realism  makes  his  enforced  self-denial  appear  almost  saintly.  He  limits 
his  ambition  to  his  purse,  present  and  future,  so  that  his  accepted  way 
of  life  limits  his  demand  for  money  rather  than,  as  with  most  of  us,  the 
other  way  round.  At  the  other  extreme,  preoccupation  with  money 
becomes  an  end  in  itself  rather  than  the  means  of  achieving  other  goals 
in  life. 

Virtue  and  poverty,  however,  are  not  necessarily  any  more  closely 
related  than  are  riches  and  immorality.  Thus  Boswell  quotes  Samuel 

When  I  was  a  very  poor  fellow  I  was  a  great  arguer  for  the  advantages  of 
poverty  .  .  .  but  in  a  civilised  society  personal  merit  will  not  serve  you  so 
much  as  money  will.  Sir,  you  may  make  the  experiment.  Go  into  the  street, 
and  give  one  man  a  lecture  on  morality,  and  another  a  shilling,  and  see 
which  will  respect  you  most .  .  .  Ceteris  paribus,  he  who  is  rich  in  a  civilised 
society,  must  be  happier  than  he  who  is  poor.  (Boswell  1791,  52-3) 

Johnson's  commonsense  approach  to  the  human  significance  of  money 
not  only  rings  as  true  today  as  it  did  two  centuries  ago,  but  may  be 
mirrored  in  the  statements  and  actions  of  much  earlier  civilizations. 

The  minority  who  find  it  possible  to  exhibit  a  Spartan  disdain  for 
money  has  always  been  exceptionally  small  and  in  modern  times  has 
declined  to  negligible  proportions,  since  the  very  few  people  concerned 
are  surrounded  by  the  vast  majority  for  whom  money  plays  a  role  of 
growing  importance.  Even  those  who  as  individuals  might  choose  to 
belittle  money  find  themselves  constrained  at  the  very  least  to  take  into 
account  the  habits,  views  and  attitudes  of  everyone  else.  In  short,  no 
free  man  can  afford  the  luxury  of  ignoring  money,  a  universal  fact 
which  explains  why  Spartan  arrogance  was  achieved  at  the  cost  of  an 



iron  discipline  that  contrasted  with  the  freedom  of  citizens  of  other 
states  more  liberal  with  money.  This  underlying  principle  of  freedom  of 
choice  which  is  conferred  on  those  with  money  became  explicitly  part 
of  the  strong  foundations  of  classical  economic  theory  in  the  nineteenth 
century,  expounded  most  clearly  in  the  works  of  Alfred  Marshall,  as 
'the  sovereignty  of  the  consumer',  a  concept  which  despite  all  the 
qualifications  which  modify  it  today,  nevertheless  still  exerts  its 
considerable  force  through  the  mechanism  of  money. 

Sovereignty  of  monetary  policy 

This  essential  linkage  between  money,  free  consumer  choice  and 
political  liberty  is  the  central  and  powerful  theme  of  Milton  Friedman's 
brand  of  monetarism  consistently  proclaimed  for  at  least  two  decades, 
from  his  Capitalism  and  Freedom  (1962)  to  what  he  has  called  his 
'personal  statement',  Free  to  Choose,  published  in  1980.  An  even  longer 
crusade  championing  the  essential  liberalism  of  money-based  allocative 
systems  was  waged  by  Friedrich  Hayek,  from  his  Road  to  Serfdom  in 
1944  to  his  Economic  Freedom  of  1991. 

Yet  for  a  generation  before  Friedman,  the  eminent  Cambridge 
economist  Joan  Robinson  called  into  question  the  conventional  basis  of 
consumer  sovereignty  in  her  pioneering  work  on  Imperfect  Competition 
(1933).  Indeed  she  doubted  'the  validity  of  the  whole  supply-and- 
demand-curve  analysis'  (p.327).  Many  years  later,  with  perhaps  too 
humble  and  pessimistic  an  assessment  of  the  tremendous  influence  of 
her  writing,  she  felt  forced  to  lament:  All  this  had  no  effect.  Perfect 
competition,  supply  and  demand,  consumer's  sovereignty  and  marginal 
products  still  reign  supreme  in  orthodox  teaching.  Let  us  hope  that  a 
new  generation  of  students,  after  forty  years,  will  find  in  this  book  what 
I  intended  to  mean  by  it'  (1963,  xi). 

By  the  mid-1970s  it  became  obvious  that,  as  in  the  inter-war  period, 
the  fundamental  beliefs  of  economic  theory  were  again  being 
challenged,  and  nowhere  was  this  probing  deeper  or  more  urgent  than 
with  regard  to  monetary  economics.  Mass  unemployment  had  pushed 
Keynes  towards  a  general  theory  which,  when  widely  accepted,  helped 
to  bring  full  employment,  surely  the  richest  reward  that  can  ever  be  laid 
to  the  credit  (if  admittedly  only  in  part)  of  the  economist's  theorizing. 
But  persistent  inflation  posed  questions  which  Keynesians  failed  to 
answer  satisfactorily,  while  the  return  of  mass  unemployment  combined 
with  still  higher  inflation  finally  destroyed  the  Keynesian  consensus, 
and  allowed  the  monetarists  to  capture  the  minds  of  our  political 



Nevertheless,  Joan  Robinson's  view  is  quite  true  in  that  the 
modifications  of  classical  value  theory  (now  being  painfully  and 
patchily  refurbished  by  the  New  Classical  School)  were  as  nothing 
compared  with  the  surging  revolutions  in  monetary  theories  which  have 
occurred  since  the  1930s,  mainly  taking  the  form  of  a  forty  years'  war 
between  Keynesians  and  monetarists,  until  the  latter  ultimately 
achieved  control  over  practical  policies  in  much  of  the  western  world  by 
the  end  of  the  1970s,  despite  the  continuing  strong  dissent  of  the  now 
conventional  Keynesian  economists.  Whereas  the  man  in  the  street 
knows  nothing  of  the  economics  of  imperfect  competition  or  the  theory 
of  contestable  markets,  he  feels  himself  equipped  and  more  than  willing 
to  take  sides  in  the  great  monetarist  debates  of  the  day.  Without  being 
dogmatic  about  this,  it  is  unlikely  that  in  any  previous  age  monetary 
affairs  and  monetary  theories  have  ever  captured  so  vast  an  army  of 
debaters,  professional  and  amateur,  as  exists  in  today's  perplexing 
world  of  uncertainty,  inflation,  unemployment,  stagnation  and 
recession.  Can  the  control  of  money,  one  wonders,  be  the  sovereign 
remedy  for  all  these  ills? 

Never  before  has  monetary  policy  openly  and  avowedly  occupied  so 
central  a  role  in  government  policy  as  from  the  1980s  with  the 
'Thatcherite  experiment'  in  Britain  and  the  'Reaganomics'  of  the 
United  States.  Needless  to  say,  if  monetary  policy  finally  reigns  supreme 
in  the  two  countries  of  the  world  which  have  together  dominated 
economic  theory  and  international  trade  and  finance  over  the  last  two 
centuries  this  fact  is  bound  to  have  an  enormous  influence  on  current 
financial  thought  and  practice  throughout  the  world.  If  money  is  now 
of  such  preponderant  importance  in  the  North  it  cannot  fail  also  to 
exert  its  powerful  sway  over  the  dependent  economies  and 
'independent'  central  banks  of  the  developing  countries  of  the  South. 
This  tendency  is  of  course  strongly  reinforced  by  the  growing  burden  of 
sovereign  debt,  i.e.  debts  mainly  owed  or  guaranteed  by  governments 
and  government  agencies  in  countries  like  Mexico,  Brazil,  Argentina, 
Poland,  Romania,  Nigeria,  India  and  South  Korea,  and  to  private  and 
public  banks  and  agencies  in  the  West.  The  unprecedented  scale  of  this 
long-term  debt,  coupled  with  the  vast  short-term  flows  of  petro-dollars 
and  Euro-currencies,  is  in  part  reflection  and  in  part  cause  of  the 
worldwide  inflationary  pressures,  again  of  unprecedented  degree,  which 
have  raised  public  concern  about  the  subject  of  money  to  its  present 
pinnacle.  There  are  far  more  people  using  much  more  money, 
interdependently  involved  in  a  greater  complex  of  debts  and  credits 
than  ever  before  in  human  history.  However,  despite  man's  growing 
mastery  of  science  and  technology,  he  has  so  far  been  unable  to  master 



money,  at  any  rate  with  any  acceptable  degree  of  success,  and  to  the 
extent  that  he  has  succeeded,  the  irrecoverable  costs  in  terms  of  mass 
unemployment  and  lost  output  would  seem  to  outweigh  the  benefits. 

If  money  were  merely  a  tangible  technical  device  so  that  its  supply 
could  be  closely  defined  and  clearly  delimited,  then  the  problem  of  how 
to  master  and  control  it  would  easily  be  amenable  to  man's  highly 
developed  technical  ingenuity.  In  the  same  way,  if  inflation  had  simply  a 
single  cause  —  government  —  and  money  supply  came  simply  from  the 
same  single  source,  then  mechanistic  controls  might  well  work. 
However,  although  government  is  powerful  on  both  sides  of  the 
equation  it  is  only  one  among  many  complex  factors.  Among  these 
neglected  factors,  according  to  H.  C.  Lindgren,  in  a  rare  book  on  the 
psychology  of  money,  'the  psychological  factor  that  continually  eludes 
the  analysts  and  planners  is  the  mood  of  the  public'  (1980,  54). 

Furthermore,  technology  in  solving  technical  problems  often  creates 
yet  more  intractable  social  and  psychological  problems,  which  is  why, 
according  to  Dr  Bronowski,  'there  has  been  a  deep  change  in  the  temper 
of  science  in  the  last  twenty  years:  the  focus  of  attention  has  shifted 
from  the  physical  to  the  life  sciences'  and  'as  a  result  science  is  drawn 
more  and  more  to  the  study  of  individuality'  (Bronowski  1973).  It  is 
ironic  that  just  when  physical  scientists  are  seeing  the  value  of  a  more 
humanistic  approach,  economics,  and  particularly  monetary 
economics,  has  become  less  so  by  attempting  to  become  more 
'scientific',  mechanistic  and  measurable. 

Unprecedented  inflation  of  population 

There  is  an  additional  factor,  'real'  as  opposed  to  'financial',  which 
helps  to  explain  the  sustained  strength  of  worldwide  inflationary  forces 
and  yet  remains  unmentioned  in  most  modern  works  on  money  and 
inflation,  viz.  the  pressure  of  a  rapidly  expanding  world  population  on 
finite  resources  —  virtually  a  silent  explosion  so  far  as  monetarist 
literature  is  concerned.  Thus  nowhere  in  Friedman's  powerful,  popular 
and  influential  book  Free  to  Choose  is  there  even  any  mention  of  the 
population  problem,  nor  the  slightest  hint  that  the  inflation  on  which 
he  is  acknowledged  to  be  the  world's  greatest  expert  might  in  any  way 
be  caused  by  the  rapidly  rising  potential  and  real  demands  of  the 
thousands  of  millions  born  into  the  world  since  he  began  his  researches. 
Further  treatment  of  these  matters  must  await  their  appropriate  place  in 
later  chapters,  but  since  the  size  and  distribution  of  this  tremendous 
growth  of  population  is  crucial  to  an  understanding  of  why  the  study  of 
money  is  currently  of  unprecedented  importance,  a  few  introductory 



comments  appear  to  be  essential.  One  neglected  reason  why  monetary 
policy  may  appear  to  be  so  attractively  powerful  in  the  richer  North  and 
West  is  precisely  because  there  population  pressures  are  least.  In 
contrast,  whereas  monetary  policy  is  of  special  importance  in  the  poor 
developing  countries  of  the  South  and  East,  its  scope  and  powers  are 
considerably  reduced  because  this  is  where  population  pressures  are 
greatest.  Too  many  people  are  chasing  too  few  goods. 

The  currently  fashionable  monetarist  explanations  of  inflation  fail, 
then,  to  take  into  account  the  rapid  rise  in  real  pressure  on  resources 
stemming  from  the  population  explosion.  This  forces  communities  to 
react  by  creating,  by  means  of  various  devices  easily  learned  from  the 
West,  the  moneys  required  to  help  to  accommodate  such  pressures.  The 
enormous  size  of  these  increases  since  1945  is  such  that  millions  of 
relatively  rich  have  added  their  effective  demand  to  the  frustrated 
potential  demands  of  the  thousands  of  millions  more  who  have 
remained  abysmally  poor.  The  trend  of  demand  increases  year  by  year 
causing  relatively  greater  scarcities  of  primary  resources  and  also  of 
manufactured  goods  and  services  such  as  consumer  durables,  health 
care  and  education.  The  vastly  increased  competition  for  such  goods 
and  services  helps  to  give  an  upward  twist  to  the  inflationary  spiral 
despite  the  periodic  changes  in  the  terms  of  trade  for  certain  primary 
products.  World  population  has  ultimately  increased,  in  some  ways  as 
Malthus  predicted  over  two  hundred  years  ago,  at  a  pace  exceeding 
productivity,  since  productivity  is  at  or  near  its  lowest  in  those  areas 
where  population  growth  is  at  or  near  its  greatest. 

It  took  man  a  million  years  or  so,  until  about  1825,  to  reach  a  total 
population  of  1,000  million,  but  only  about  one  hundred  years  to  add 
another  1,000  million  and  only  some  fifty  years,  from  1925  to  1975  to 
double  that  total  to  4,000  million,  by  which  time  the  population  was 
already  increasing  by  75  million  annually.  In  the  generation  from  1975 
to  the  year  2000,  according  to  a  consensus  of  opinion  among  experts  in 
Britain,  USA  and  the  United  Nations  Organization,  world  population 
will  increase  by  55  per  cent  or  2,261  million  to  a  total  of  6,351  million 
and  will  then  be  increasing  by  around  100  million  annually,  so  that,  if 
currently  projected  growth  rates  continue,  world  population  may  reach 
10,000  million  by  around  the  year  2030,  well  within  the  life  expectancy 
of  persons  now  reaching  adult  years  in  the  western  world.1 

The  whole  world  has  now  broken  the  link  with  commodity  money 
which  once  acted  as  a  brake  on  inflation.  The  less  developed  countries 
are  even  less  able  than  the  industrialized  countries  to  avoid  the 

1  For  a  powerfully  presented  and  more  optimistic  view  see  B.  Lomborg,  The  Skeptical 
Environmentalist  (Cambridge,  2001). 



mismanagement  of  money,  so  that  in  their  attempts  to  create  monetary 
claims,  including  borrowing,  to  compete  for  resources  which  are 
tending  to  grow  ever  scarcer  relatively  to  demand,  runaway  inflation 
with  rates  of  up  to  100  per  cent  or  more  per  annum  are  not  uncommon. 
Added  to  these  unprecedented  monetary  problems  over  90  per  cent  of 
the  projected  increase  in  population  to  the  end  of  the  century  will  take 
place  in  these  poor  and  less  developed  countries,  which  by  their  very 
nature  find  it  more  difficult  than  their  richer,  industrialized  neighbours 
to  stem  the  full  tide  of  inflation.  Intensifying  this  trend  is  the  increasing 
urbanization  of  previously  predominantly  rural  communities,  with  the 
greater  emphasis  on  money  incomes  that  is  the  inevitable  concomitant 
of  such  migration.  A  few  telling  examples  must  suffice,  taking  the 
population  in  1960  and  the  projections  for  the  year  2000  in  parenthesis 
based  on  UN  estimates  and  medium  projections:  Calcutta  5.5  m  (19.7 
m);  Mexico  City  4.9  m  (31.6  m);  Bombay  4.1  m  (19.1  m);  Cairo  3.7  m 
(16.4  m);  Jakarta  2.7  m  (16.9  m);  Seoul  2.4  m  (18.7  m);  Delhi  2.3  m 
(13.2  m);  Manila  2.2  m  (12.7  m);  Tehran  1.9  m  (13.8  m),  and  Karachi 
1.8  m  (15.9  m).  These  ten  towns  alone  will  increase  from  a  total  of  31.5 
m  to  178  m.  {Global 2000 1982,  242).  This  gives  a  new  twist  to  William 
Cowper's  claim:  'God  made  the  country  and  man  made  the  town.'2 

The  young  age  composition  of  such  vastly  expanding  populations 
increases  mobility,  the  acceptance  of  change  and  the  political  pressures 
for  change,  including  the  desire  to  have  at  least  some  share  in  the  rising 
standards  of  living  of  the  richer  countries,  of  which,  through  rapidly 
improved  communications,  they  are  becoming  increasingly  conscious. 
This  international  extension  of  the  'Duesenberry  effect'  (Duesenberry 
1967),  viz.  that  the  patterns  of  consumption  of  the  next  highest  social 
class  are  deemed  most  desirable,  again  helps  to  create  increased 
expenditure  pressures  throughout  the  developing  world  and  particularly 
in  those  populous  pockets  of  relatively  rich  areas  which  exist  almost 
cheek  by  jowl  among  the  urban  poor.  Duesenberry  also  makes  the 
important  point  that  'the  larger  the  rate  of  growth  of  population  the 
larger  the  average  propensity  to  consume'  (Duesenberry  1958,  265). 
Confronted  with  the  magnitude  of  the  problem  of  world  poverty, 
western  man  may  feel  uncomfortable,  individually  helpless  and 
perplexed  by  the  merits  of  'aid  versus  trade'.  There  is  an  imbalance  in 
awareness  as  between  North  and  South,  and  whereas  it  would  be  a 
caricature  to  say  'They  ask  for  bread,  and  we  give  them  .  .  .  Dallas', 
nevertheless  the  three-quarters  of  the  world's  people  in  the  hungry 

2  According  to  the  UN  survey  The  World  Population,  2001,  2.8  billion  already  lived  in 
cities,  rising  to  3.9  billion  by  2015,  with  23  cities  exceeding  10  million,  including  five 
exceeding  20  million  each. 



south  are  increasingly  aware  of  how  the  other  quarter  lives.  This 
caricature  is  not  unlike  Picasso's  definition  of  art  as  a  'lie  which  helps  us 
to  see  the  truth'.  Be  that  as  it  may,  the  expenditure  patterns  of  society 
throughout  the  world  are  becoming  westernized,  breaking  down 
indigenous  social  patterns  and  so  leading  to  modern  habits  which, 
unfortunately,  tend  to  encourage  inflationary  monetary  systems.  Thus, 
the  worldwide  expansion  of  money  has  been  partly  caused  by,  but  has 
far  exceeded,  the  vast  expansion  of  population. 

Although  the  question  of  whether  the  world  is  approaching  the  limits 
of  growth  may  cause  a  growing  number  of  fortunate  men  in  modern 
affluent  societies  to  cast  doubt  on  the  need  for  greater  economic 
growth,  nevertheless  there  is  no  question  that  economic  growth  affords 
the  only  means  whereby  approximately  half  the  world's  population  -  its 
women  -  can  escape  from  the  daily  drudgery  that  has  brutalized  life  for 
millions  throughout  time.  The  appalling  persistence  of  poverty  and 
what  it  means  for  families  and  especially  mothers  is  brought  out 
(insofar  as  these  matters  can  ever  meaningly  be  described  in  words)  by 
the  Brandt  Report  in  1980  which  gives  the  estimate  of  the  United 
Nations  Children's  Fund  that  in  1978  more  than  twelve  million  children 
under  five  years  of  age  died  of  hunger  (Brandt  1980,  16).  UNICEF's 
estimate  for  1979,  the  'Year  of  the  Child',  rose  to  seventeen  million.  It 
may  be  an  eminently  debatable  point  as  to  whether  man  without  money 
is  like  Hobbes's  famous  picture  of  man  without  government:  'No  arts; 
no  letters;  no  society;  and  which  is  worst  of  all,  continual  fear  and 
danger  of  violent  death;  and  the  life  of  man,  solitary,  poor,  nasty, 
brutish,  and  short'  (Hobbes  1651,  chapter  13).  However,  there  can  be  no 
such  doubt  as  to  the  direct  ameliorative  influence  of  economic  growth 
on  the  standard  of  living  of  the  female  half  of  the  human  race,  growing 
numbers  of  whom,  at  long  last,  are  beginning  to  enjoy  a  diffusion  of 
welfare  that  helps  to  raise,  patchily  and  hesitatingly,  the  quality  of 
family  life  over  a  large  part  of  the  world,  and  a  welcome  fall  in  the 
average  family  size. 

Increasingly  wealth,  i.e.  additions  to  capital  stock,  mostly  takes  place 
through  a  rise  in  incomes  and  expenditures,  which  necessarily  leads  to 
an  increased  use  of  money.  Therefore  an  increasing  proportion  as  well 
as  an  increasing  amount  of  trading  in  the  rapidly  growing  less 
developed  countries  of  the  world  is  now  based  on  abstract 
developments  of  money,  and  far  less  than  formerly  on  barter  and  more 
primitive  forms  of  money.  Thus  the  individual  finds  release  from 
irksome  restraint  and  is  able  to  exercise  greater  freedom  of  choice  as  a 
necessary  corollary  of  the  monetization  of  the  economies  of  the  less 
developed  countries.  In  the  aggregate,  however,  hundreds  of  millions  of 



people,  though  still  poor,  have  moved  out  of  what  were  still  largely 
subsistence  economies  into  market  economies  where  money  naturally 
plays  a  bigger  role.  The  speed  of  political,  social,  economic  and 
financial  change  (partly  but  by  no  means  entirely  because  of 
technological  development)  is  telescoping  what  were  previously  secular 
trends  in  the  West  into  mere  decades.  This  is  particularly  so  with  regard 
to  the  dramatic  change  from  primitive  to  modern  money.  Before  turning 
to  look  at  barter  and  what  is  still  for  us  today  the  important  but 
generally  neglected  subject  of  primitive  moneys  we  may  therefore 
conclude  our  preliminary  assessment  of  the  importance  of  modern 
money  by  stating  that  there  are  good  reasons  for  believing  that  money 
means  much  more  today  to  many  more  people  throughout  the  world 
than  it  has  ever  meant  before  in  human  history. 

Barter:  as  old  as  the  hills 

The  history  of  barter  is  as  old,  indeed  in  some  respects  very  much  older, 
than  the  recorded  history  of  man  himself.  The  direct  exchange  of 
services  and  resources  for  mutual  advantage  is  intrinsic  to  the  symbiotic 
relationships  between  plants,  insects  and  animals,  so  that  it  should  not 
be  surprising  that  barter  in  some  form  or  other  is  as  old  as  man  himself. 
What  at  first  sight  is  perhaps  more  surprising  is  that  such  a  primeval 
form  of  direct  exchange  should  persist  right  up  to  the  present  day  and 
still  show  itself  vigorously,  if  exceptionally,  in  so  many  guises 
particularly  in  large-scale  international  deals  between  the  eastern  bloc 
and  the  West.  However,  barter  is  crudely  robust  and  adaptable, 
characteristics  which  help  to  explain  both  its  longevity  and  its  ubiquity. 
Thus  when  the  inherent  advantages  of  barter  in  certain  circumstances 
are  carefully  considered,  then  its  coexistence  with  more  advanced  and 
convenient  forms  of  exchange  is  more  easily  appreciated  and  should 
occasion  no  surprise.  Foremost  among  these  advantages  is  the  concrete 
reality  of  such  exchanges:  no  one  parts  with  value  in  return  for  mere 
paper  or  token  promises,  but  rather  only  in  due  return  for  worthwhile 
goods  or  services.  In  an  inflationary  age  where  international  indexing 
and  the  legal  enforcement  of  contracts  are  either  in  their  infancy  or  of 
very  shaky  construction,  this  primary  advantage  of  barter  may  more 
than  compensate  for  its  cumbersome  awkwardness. 

Throughout  by  far  the  greater  part  of  man's  development,  barter 
necessarily  constituted  the  sole  means  of  exchanging  goods  and 
services.  It  follows  from  this  that  the  historical  development  of  money 
and  finance  from  relatively  ancient  times  onwards  -  the  substance  of 
our  study  -  overlaps  only  to  a  small  degree  the  study  of  barter  as  a 



whole.  Consequently  we  know  more  about  barter's  complementary 
coexistence  with  money  than  we  do  about  barter  in  those  long,  dark, 
moneyless  ages  of  prehistory,  and  thus  we  tend  to  derive  our  knowledge 
of  barter  from  the  remaining  shrinking  moneyless  communities  of  more 
modern  times.  It  is  principally  from  these  latter  backward  communities 
rather  than  from  the  mainstream  of  human  progress  that  most  accounts 
of  barter  have  been  taken  to  provide  the  basic  examples  typically 
occurring  in  modern  textbooks  on  money.  Little  wonder  then  that  these 
have  tended  not  only  to  overstress  the  disadvantages  of  barter  but  have 
also  tended  to  base  the  rise  of  money  on  the  misleadingly  narrow  and 
mistaken  view  of  the  alleged  disadvantages  of  barter  to  the  exclusion  of 
other  factors,  most  of  which  were  of  very  much  greater  importance  than 
the  alleged  shortcomings  of  barter.  Barter  has,  undeservedly,  been  given 
a  bad  name  in  conventional  economic  writing,  and  its  alleged  crudities 
have  been  much  exaggerated. 

As  the  extent  and  complexity  of  trade  increased  so  the  various 
systems  of  barter  naturally  grew  to  accommodate  these  increasing 
demands,  until  the  demands  of  trade  exceeded  the  scope  of  barter, 
however  improved  or  complex.  One  of  the  more  important 
improvements  over  the  simplest  forms  of  early  barter  was  first  the 
tendency  to  select  one  or  two  particular  items  in  preference  to  others  so 
that  the  preferred  barter  items  became  partly  accepted  because  of  their 
qualities  in  acting  as  media  of  exchange  although,  of  course,  they  still 
could  be  used  for  their  primary  purposes  of  directly  satisfying  the  wants 
of  the  traders  concerned.  Commodities  were  chosen  as  preferred  barter 
items  for  a  number  of  reasons  -  some  because  they  were  conveniently 
and  easily  stored,  some  because  they  had  high  value  densities  and  were 
easily  portable,  some  because  they  were  more  durable  (or  less 
perishable).  The  more  of  these  qualities  the  preferred  item  showed,  the 
higher  the  degree  of  preference  in  exchange.  Perhaps  the  most  valuable 
step  forward  in  the  barter  system  was  made  when  established  markets 
were  set  up  at  convenient  locations.  Very  often  such  markets  had  been 
established  long  before  the  advent  of  money  but  were,  of  course, 
strengthened  and  confirmed  as  money  came  into  greater  use  -  money 
which  in  many  cases  had  long  come  into  existence  for  reasons  other 
than  trading.  In  process  of  time  money  was  seen  to  offer  considerable 
advantages  over  barter  and  very  gradually  took  over  a  larger  and  larger 
role  while  the  use  of  barter  correspondingly  diminished  until  eventually 
barter  simply  re-emerged  in  special  circumstances,  usually  when  the 
money  system,  which  was  less  robust  than  barter,  broke  down.  Such 
circumstances  continue  to  show  themselves  from  time  to  time  and 
persist  to  this  day.  In  some  few  instances  communities  appear  to  have 



gone  straight  from  barter  to  modern  money.  However,  in  most  instances 
the  logical  sequence  (barter,  barter  plus  primitive  money,  primitive 
money,  primitive  plus  modern  money,  then  modern  money  almost 
exclusively)  has  also  been  the  actual  path  followed,  but  with  occasional 
reversions  to  previous  systems.3 

Persistence  of  gift  exchange 

One  of  the  more  interesting  forms  of  early  barter  was  gift  exchange, 
which  within  the  family  partook  more  of  gift  than  exchange  but  beyond 
that,  as  for  example  between  different  tribes  was  much  more  in  the 
nature  of  exchange  than  of  gift.  Silent  or  dumb  barter  took  place  where 
direct  and  possibly  dangerous  contact  was  deliberately  avoided  by  the 
participants.  An  amount  of  a  particular  commodity  would  be  left  in  a 
convenient  spot  frequented  by  the  other  party  to  the  exchange,  who 
would  take  the  goods  proffered  and  leave  what  they  considered  a  fair 
equivalent  in  exchange.  If,  however,  after  obvious  examination,  these 
were  not  considered  sufficient  they  would  remain  untaken  until  the 
amount  originally  offered  had  been  increased.  In  this  way  the  barter 
system,  despite  being  silent  was  nevertheless  an  effective  and 
competitive  form  of  hard  bargaining. 

Competitive  gift  exchange  probably  reached  its  most  aggressive 
heights  in  the  ritualized  barter  ceremonies  among  North  American 
Indians,  whence  it  is  generally  known  from  the  Chinook  name  for  the 
practice,  as  'potlatch'.  This  was  far  more  than  merely  commercial 
exchange  but  was  a  complex  mixture  of  a  wide  range  of  both  public  and 
private  gatherings,  the  latter  involving  initiation  into  tribal  secret 
societies  and  the  former  partaking  of  a  number  of  cultural  activities  in 
which  public  speaking,  drama  and  elaborate  dances  were  essential 
features.  The  potlatch  was  a  sort  of  masonic  rite,  eisteddfod,  Highland 
games,  religious  gathering,  dance  festival  and  market  fair  all  rolled  into 
one.  The  cultural  and  the  commercial  interchanges  were  part  of  an 
integrated  whole.  However  it  is  clear  that  one  of  the  main  purposes  of 
these  exchange  ceremonies  was  to  validate  the  social  ranking  of  the 
leading  participants.  A  person's  prestige  depended  largely  on  his  power 
to  influence  others  through  the  impressive  size  of  the  gifts  offered,  and, 
since  the  debts  carried  interest,  the  'giver'  rose  in  the  eyes  of  the 
community  to  be  an  envied  creditor,  indeed  a  person  of  considerable 
standing.  So  much  time  and  energy,  so  much  rivalry  and  envy,  coupled 

3  'The  advent  of  personal  computers  has  reduced  some  of  the  basic  problems 
associated  with  barter,  i.e.  double  coincidences  of  wants  and  dissemination  of 
information',  A.  Marvash  and  D.  J.  Smyth,  Economic  Letters  64,  1999,  p.  74. 



with  a  certain  amount  of  understandable  drunkenness  and,  for  reasons 
about  to  be  explained,  of  wasteful  and  deliberate  destruction  also, 
accompanied  these  proceedings  that  the  Canadian  federal  government 
was  eventually  forced  to  ban  the  custom.  It  did  this  first  by  the  Indian 
Act  of  1876,  but  its  ineffectiveness  led  to  further  amendments  and  a 
comprehensive  new  enactment  some  fifty-one  years  later.  Although  the 
potlatch  system  was  fairly  widespread  over  North  America  and  varied 
from  tribe  to  tribe,  the  experiences  of  the  Kwakiutl  Indians  of  the 
coastal  regions  of  British  Columbia  may  be  taken  as  typical.  A  taped 
autobiography  of  James  Sewid,  chief  councillor  of  the  largest  Kwakiutl 
village  in  the  1970s,  contains  vivid  first-hand  descriptions  of  potlatch 
ceremonies  during  the  period  of  their  final  flourishes  (Spradley  1972). 
According  to  Sewid,  awareness  of  rank  dominated  his  tribal  society,  and 
the  major  institution  for  assuming,  maintaining  and  increasing  social 
status  was  the  potlatch,  of  which  there  were  local,  regional  and  tribal 
varieties  in  ascending  order.  After  much  feasting  and  many  speeches  the 
public  donations  were  ostentatiously  distributed.  A  person  would  fail 
to  attain  any  social  standing  without  a  really  lavish  distribution,  and  in 
the  extreme  cases  chiefs  would  demonstrate  their  wealth  and  prestige  by 
publicly  destroying  some  of  their  possessions  so  as  to  demonstrate  that 
they  had  more  than  they  needed.  Increasing  trade  with  European 
immigrants  in  the  1920s  at  first  considerably  raised  the  material 
standards  of  the  Kwakiutl  and  increased  the  number  and  wanton  waste 
of  the  potlatches,  so  much  so  that  the  federal  government  felt  compelled 
to  react  strongly. 

The  Revised  Statutes  of  Canada  1927,  clause  140,  stipulated  that 
'Every  Indian  or  other  person  who  engages  in  any  Indian  festival,  dance 
or  other  ceremony  of  which  the  giving  away  or  paying  or  giving  back  of 
money,  goods  or  articles  of  any  sort  forms  a  part  ...  is  guilty  of  an 
offence  and  is  liable  on  summary  conviction  to  imprisonment  for  a  term 
not  exceeding  six  months  and  not  less  than  two  months.'  Sewid  himself, 
as  a  boy,  saw  his  relatives  sent  to  prison  for  participating  in  the 
proscribed  potlatches.  In  Sewid's  experience,  these  potlatch  ceremonies 
would  last  for  several  days,  and  the  competitive  presents  would  include 
not  only  such  traditional  items  as  clothing,  blankets,  furs  and  canoes, 
but  also  copper  shields  and  such  twentieth-century  luxuries  as  sewing 
machines,  pedal  and  motor  cycles  and  motor  boats.  After  reaching  their 
high  point  in  the  mid-1920s  the  age-old  potlatch  ceremonials  gradually 
died  away  —  the  combined  result  of  the  new  legislation,  its  stronger 
enforcement  and,  probably  of  still  greater  influence,  the  cultural 
penetration  of  Indian  villages  by  teachers  and  entrepreneurs.  It  is  rather 
ironic  that  by  the  time  the  clauses  of  the  1927  Act  prohibiting  potlatches 



were  finally  repealed  in  1951,  these  age-old  ceremonies  were  already  on 
their  last  legs  and  to  all  intents  and  purposes  ceased  to  exist  by  the  end 
of  the  1960s.  Modern  money  and  European  cultures  had  however  taken 
nearly  three  centuries  to  conquer  this  form  of  tribal  barter  in  North 

Having  persisted  for  many  hundreds  of  years  this  elaborate  system  of 
barter,  more  social  than  economic,  at  first  easily  absorbed  the  various 
kinds  of  money  brought  in  by  the  European  conquerors,  but  after  a 
final  flourish  in  the  inter-war  period,  rather  suddenly  slumped. 
Unfortunately,  in  trying  to  suppress  the  less  desirable  aspects  of  the 
potlatch,  its  good  features  were  also  weakened.  The  replacement  of  one 
kind  of  exchange  by  another,  or  of  one  kind  of  money  by  another,  often 
has  severe  and  unforeseen  social  consequences.  In  the  case  of  a  number 
of  Indian  tribes  the  conflict  of  culture  was  particularly  harsh  and  the 
ending  of  the  potlatch  removed  some  of  the  most  powerful  work 
incentives  from  the  younger  section  of  the  communities. 

One  cannot  leave  the  subject  of  competitive  gift  exchange  without  a 
brief  reference  to  the  most  celebrated  of  all  such  encounters,  namely 
that  between  the  Queen  of  Sheba  and  Solomon  in  or  about  the  year  950 
BC.  Extravagant  ostentation,  the  attempt  to  outdo  each  other  in  the 
splendour  of  the  exchanges,  and  above  all,  the  obligations  of  reciprocity 
were  just  as  typical  in  this  celebrated  encounter,  though  at  a  fittingly 
princely  level,  as  with  the  more  mundane  types  of  barter  in  other  parts 
of  the  world.  The  social  and  political  overtones  were  just  as  inseparably 
integral  parts  of  the  process  of  commercial  exchanges  in  the  case  of  the 
Queen  of  Sheba  as  with  the  Kwakiutl  Indians,  even  though  it  would  be 
harder  to  imagine  a  greater  contrast  in  cultures. 

Money:  barter's  disputed  paternity 

One  of  the  most  influential  writers  on  money  in  the  second  half  of  the 
nineteenth  century  was  William  Stanley  Jevons  (1835-82).  His 
theoretical  approach  was  enriched  by  five  years'  practical  experience  as 
assayer  in  the  Sydney  Mint  in  Australia  at  a  time  when  money  for  most 
people  meant  coins  above  all  else.  He  begins  his  book  on  Money  and 
the  Mechanism  of  Exchange  (1875)  by  giving  two  illustrations  of  the 
drawbacks  of  barter,  and  it  was  largely  his  great  influence  which  helped 
to  condition  conventional  economic  thought  for  a  century  regarding  the 
inconvenience  of  barter.  He  first  relates  how  Mile  Zelie,  a  French  opera 
singer,  in  the  course  of  a  world  tour  gave  a  concert  in  the  Society  Islands 
and  for  her  fee  received  one-third  of  the  proceeds.  Her  share  consisted 
of  three  pigs,  twenty-three  turkeys,  forty-four  chickens,  five  thousand 



coconuts  and  considerable  quantities  of  bananas,  lemons  and  oranges. 
Unfortunately  the  opera  singer  could  consume  only  a  small  part  of  this 
total  and  (instead  of  declaring  the  public  feast  which  she  might  well 
have  done  had  she  been  versed  in  local  custom)  found  it  necessary 
before  she  left  to  feed  the  pigs  and  poultry  with  the  fruit.  Thus  a 
handsome  fee  which  was  equivalent  to  some  four  thousand  pre-1870 
francs  was  wastefully  squandered.  Jevons's  second  account  concerns  the 
famous  naturalist  A.  R.  Wallace  who,  when  on  his  expeditions  in  the 
Malay  Archipelago  between  1854  and  1862  (during  which  he  originated 
his  celebrated  theory  of  natural  selection)  though  generally  surfeited 
with  food,  found  that  in  some  of  the  islands  where  there  was  no 
currency  mealtimes  were  preceded  by  long  periods  of  hard  bargaining, 
and  if  the  commodities  bartered  by  Wallace  were  not  wanted  then  he 
and  his  party  simply  had  to  go  without  their  dinner.  Jevons's  readers, 
after  having  vicariously  suffered  the  absurd  frustrations  of  Mile  Zelie 
and  Dr  Wallace,  were  more  than  willing  to  accept  uncritically,  as  have 
generations  of  economists  and  their  students  subsequently,  the 
devastating  criticisms  which  Jevons  made  of  barter,  without  making 
sufficient  allowance  for  the  fact  that  those  particular  barter  systems, 
however  well  suited  for  the  indigenous  uses  of  that  particular  society, 
had  not  been  developed  to  conduct  international  trade  between  the 
Theatre  Lyrique  in  Paris  and  the  Society  Islanders,  nor  was  it  designed 
to  further  the  no  doubt  interesting  theories  of  explorers  like  Wallace. 
Obviously,  whilst  one  should  not  take  such  inappropriate  examples  as 
in  any  way  typical,  nevertheless  they  show  up  in  a  glaringly  strong  light, 
as  Jevons  intended  -  even  if  in  an  exaggerated  and  unfair  manner  -  the 
disadvantages  appertaining  to  barter. 

By  far  the  most  authoritative  writer  on  barter  and  primitive  moneys 
in  the  twentieth  century  was  Dr  Paul  Einzig,  to  whose  stimulating  and 
comprehensive  account  of  Primitive  Money  in  its  Ethnological, 
Historical  and  Economic  Aspects  (1966)  this  writer  is  greatly  indebted, 
as  should  be  all  those  who  write  on  these  fascinating  subjects. 
Unfortunately  most  writers  on  money  seem  studiously  to  have  avoided 
Einzig's  most  valuable  and  almost  unique  contribution,  possibly 
because  his  lucid,  readable  style  belies  the  quality,  erudition  and 
creativity  of  his  work,  and  possibly  also  because  his  sharp  attacks  on 
conventional  economists'  treatment  of  barter  were  driven  home  with 
unerring  aim.  As  he  demonstrates: 

There  is  an  essential  difference  between  the  negative  approach  used  by 
many  generations  of  economists  who  attributed  the  origin  of  money  to  the 
intolerable  inconvenience  of  barter  that  forced  the  community  to  adopt  a 
reform,  and  the  positive  approach  suggested  here,  according  to  which  the 



method  of  exchange  was  improved  upon  before  the  old  method  became 
intolerable  and  before  an  impelling  need  for  the  reforms  had  arisen  .  .  .  The 
picture  drawn  by  economists  about  the  inconvenience  of  barter  in  primitive 
communities  is  grossly  exaggerated.  It  would  seem  that  the  assumption  that 
money  necessarily  arose  from  the  realisation  of  the  inconveniences  of 
barter,  popular  as  it  is  among  economists,  needs  careful  re-examination. 
(Einzig,  1966,  346,  353) 

One  must  not  of  course  overplay  the  adaptability  of  barter,  otherwise 
money  would  never  have  so  largely  supplanted  it.  The  most  obvious  and 
important  drawback  of  barter  is  that  concerned  with  the  absence  of  a 
generalized  or  common  standard  of  values,  i.e.  the  price  systems 
available  with  money.  Problems  of  accounting  multiply  enormously  as 
wealth  and  the  varieties  of  exchangeable  goods  increase,  so  that 
whereas  the  accounting  problems  in  simple  societies  may  be 
surmountable,  the  foundations  of  modern  society  would  crumble 
without  money.  Admittedly  the  emergence  of  a  few  preferred  barter 
items  as  steps  towards  more  generalized  common  measures  of  value 
managed  to  extend  the  life  of  barter  systems,  but  by  the  nature  of  the 
accountancy  problem,  barter  on  a  large  scale  became  computationally 
impossible  once  a  quite  moderate  standard  of  living  had  been  achieved 
and,  despite  the  growing  importance  of  barter  in  special  circumstances 
in  the  last  four  or  five  decades,  modern  societies  could  not  exist  without 
monetary  systems.  A  second  inherent  disadvantage  of  barter  is  that 
stemming  from  its  very  directness,  namely  the  double  coincidence  of 
wants  required  to  complete  an  exchange  of  goods  or  services.  In  pure 
barter  if  the  owner  of  an  orchard,  having  a  surplus  of  apples,  required 
boots  he  would  need  to  find  not  simply  a  cobbler  but  a  cobbler  who 
wanted  to  purchase  apples;  and  even  then  there  remained  the  problem 
of  determining  the  'rate  of  exchange'  as  between  apples  and  boots.  In 
the  same  way  for  each  transaction  involving  other  exchanges,  separate 
and  not  immediately  discernible  exchange  rates  would  have  to  be 
negotiated  for  every  pair  of  transactions. 

In  very  simple  societies  exchanging  just  a  few  commodities  the 
absence  of  a  common  standard  of  values  is  no  great  problem.  Thus 
trading  in  three  commodities  gives  rise  at  any  one  time  to  only  three 
exchange  rates  and  four  commodities  to  six  possible  rates.  But  five 
commodities  require  ten  exchange  rates,  six  require  fifteen  and  ten 
require  forty-five.  Obviously  the  drawbacks  of  barter  quickly  become 
exposed  with  any  increase  in  the  number  and  variety  of  commodities 
being  traded.  As  the  numbers  of  commodities  increase  the  numbers  of 
combinations  become  astronomical.  With  a  hundred  commodities 
nearly  5,000  separate  exchange  rates   (actually  4,950)   would  be 



necessary  in  a  theoretical  barter  system,  while  nearly  half  a  million 
(actually  499,500)  would  be  required  to  support  bilateral  trading  for 
1,000  commodities.4  Consequently,  despite  the  undoubted  'revival'  of 
bartering  in  recent  years  this  must  remain  very  much  an  exception  to 
the  rule  of  money  as  the  basis  of  trade.  Even  in  final  consumption  there 
are  many  thousands  of  different  goods  purchased  daily,  as  any  glance  at 
the  serried  ranks  of  supermarket  shelves  will  immediately  convey  -  but 
these  represent  only  the  final  stage  in  the  complex  network  of 
intermediate  wholesale  dealing  and  the  multiple  earlier  processes  in  the 
productive  chain.  Retail  trade,  massive  as  it  is  in  modern  societies,  is 
simply  the  tip  of  the  iceberg  of  essentially  money-based  exchanges:  a 
perusal  of  trade  catalogues  should  convince  any  doubter. 

What  money  has  done  for  the  exchange  of  commodities,  the 
computer  promises  to  do  at  least  partially  for  information  retrieval  and 
the  exchange  of  ideas  -  and  not  before  time.  To  give  but  one  example 
from  a  relatively  narrow  and  specialized  field  of  human  knowledge, 
Chemical  Abstracts  for  the  year  1982  gives  457,789  references.  Perhaps 
nothing  provides  a  more  enlightening  snapshot  of  the  essence  of  money 
than  the  ability  it  gives  us  to  compare  at  a  glance  the  relative  values  of 
any  of  the  hundreds  of  thousands  of  goods  and  services  in  which  we  as 
individuals,  families  or  larger  groups  may  be  interested,  and  to  do  so  at 
minimal  costs.  Of  course  there  are  still  very  many  national  varieties  of 
money  where  prices  are  less  certain,  more  volatile,  where  bilateral 
restrictions  are  not  uncommon  and  where  the  costs  of  exchange  are  far 
from  being  negligible.  The  Financial  Times  publishes  every  week  tables 
giving  the  world  value  of  the  pound  and  of  the  dollar,  listing  over  200 
different  national  currencies.  If  these  were  each  of  equal  importance 
then  foreign  exchange  would  involve  arbitrage  between  some  20,000 
different  combinations.  Luckily,  as  with  'preferred  barter  items',  a  few 
leading  currencies,  notably  sterling  throughout  the  nineteenth  and  early 
twentieth  century,  plus  the  American  dollar  and  more  recently  the 
German  mark,  the  euro  and  the  Japanese  yen,  have  provided  the  basis 
of  a  common  measure  of  international  monetary  values.  Every  time  a 
preferred  commodity  or  a  leading  currency  acts  as  a  focus  for  a  cluster 
of  other  commodities  or  currencies,  so  the  progressive  principle  of  the 
law  of  combinations  works  in  reverse  and  thus  greatly  reduces  the 
possible  number  of  combinations.  Internally  money  reduces  all  these  to 
a  single  common  standard,  just  as  would  the  single  world  money 
system  that  reformers  have  dreamed  about  for  generations  in  the  past  - 

4  The  formula  for  the  number  of  combinations  is  C",  —  n!/[(n— r)!r!]  where  n  is  the 
number  of  commodities  and  r  =  bilateral  groups  of  2. 



and  probably  for  generations  to  come  also.  Even  so,  the  world's  major 
banks  have  been  forced  to  install  the  most  modern  electronic 
computational  and  communications  equipment  to  handle  their  foreign 
exchanges:  a  costly  and  speculative,  but  essential  and  generally  quite 
profitable  business. 

Traditional  condemnation  of  the  time-wasting  'higgling  of  the 
market'  (to  use  Alfred  Marshall's  phrase)  which  was  inevitably 
associated  with  much  African  and  Asian  barter,  even  up  to  the  middle 
of  the  present  century,  might  well  indicate  a  lack  of  awareness  among 
critics  of  the  fact  that  the  enjoyable,  enthusiastic  and  argumentative 
process  of  prolonged  bargaining  was  very  much  the  prime  object  of  the 
exercise  -  the  actual  exchange  being  something  of  an  anticlimax, 
essential  but  not  nearly  as  enjoyable  as  the  preliminaries.  What  the 
European  saw  as  waste  the  African  saw  as  a  pleasant  social  custom. 
However,  given  the  spread  of  western  modes  of  life  the  wasteful  aspects 
of  barter  become  more  insupportable  and  unnecessarily  curtail  not 
only  the  size  and  efficiency  of  markets  but  also  act  as  a  brake  on  raising 
the  living  standards  of  the  communities  concerned.  Specialization,  as 
Adam  Smith  rightly  emphasized,  is  limited  by  the  extent  of  the  market, 
and  so  is  the  mass  production  upon  which  the  enviable  standards  of 
living  of  modern  communities  depend.  However,  the  size  of  the  market 
is  itself  crucially  dependent  upon  the  parallel  development  of  money. 
Thus  just  as  continued  reliance  on  barter  would  have  condemned 
mankind  to  eternal  poverty,  so  today  our  lack  of  mastery  of  money  is  in 
large  part  the  cause  of  widespread  relative  poverty  and  mass 
unemployment,  while  the  enormous  waste  of  potential  output  forgone 
is  lost  for  ever. 

Among  other  disadvantages  of  barter  are  the  costs  of  storing  value 
when  these  are  all  of  necessity  concrete  objects  rather  than,  for 
example,  an  abstract  bank  deposit  which  can  be  increased  relatively 
costlessly  and  can  whenever  required  be  changed  back  into  any 
marketable  object.  Besides,  a  bank  deposit  earns  interest,  whereas,  to 
reverse  Aristotle's  famous  attack  on  usury,  most  barter  is  barren. 
Services,  by  their  nature  cannot  be  stored,  so  that  bartering  for  future 
services,  necessarily  involving  an  agreement  to  pay  specific 
commodities  or  other  specific  services  in  exchange,  weakens  even  the 
supposed  normal  superiority  of  current  barter,  namely  its  ability  to 
enable  direct  and  exactly  measurable  comparisons  to  be  made  between 
the  items  being  exchanged.  In  the  absence  of  money,  or  given  the  limited 
range  of  monetary  uses  in  certain  ancient  civilizations,  it  is  little 
wonder  the  completion  of  large-scale  and  long-term  contracts  was 
usually  based  on  slavery.  Thus  the  building  of  the  Great  Pyramid  of 



Ghiza,  the  work  of  100,000  men,  and  a  logistical  problem 
commensurate  with  its  immense  size,  was  made  possible  at  that  time 
only  by  the  existence  of  slavery  (even  though  these  slaves  enjoyed  higher 
standards  of  living  than  others).  This  is  not  to  deny  that  some  relics  of 
bartering  for  services  still  exist  in  the  tied  cottages,  brewery-owned 
public  houses  and  company  perquisites  or  'perks'  today.  However 
despite  the  drawbacks  in  our  use  of  money,  particularly  the  recurrence 
of  enormously  wasteful  recessions,  caused  partly  by  instabilities 
inherent  in  money  itself,  it  is  plain  from  these  few  revealing  contrasts 
with  money,  that  barter  inevitably  carries  with  it  far  greater  intrinsic 
disadvantages.  Thus  barter's  stubborn  survival  into  modern  times  and 
its  occasional  flourishes  do  not  mean  that  it  can  play  other  than  a 
comparatively  very  minor  role  in  the  complex  interactions  of  our 
economic  life  as  a  whole. 

In  the  uncrowded,  predominantly  agricultural  communities  which 
preceded  modern  times,  it  was  possible  to  carry  on  a  fairly  considerable 
amount  of  trade  and  to  enjoy  a  reasonably  high  standard  of  living  since 
subsistence  farming  occupied  such  a  large  role,  even  when  barter  was 
the  main  method  of  exchange.  However,  this  should  not  lead  us  to 
conclude  that  barter  and  a  similarly  extensive  trade  or  a  comparable 
standard  of  living  would  be  possible  in  any  major  area  of  the  modern 
world.  Attention  has  already  been  drawn  to  the  overpopulated  areas  of 
urban  squalor  in  less  developed  countries,  so  that,  despite  the  fact  that 
agriculture  is  still  the  major  occupation  in  most  developing  countries, 
the  economies  of  such  countries  can  no  longer  rely  on  a  mixture  of 
subsistence  farming  plus  barter  but  are  inescapably  dependent  upon 
their  modern  monetary  systems,  however  inflationary.  Their  recent 
involvement  with  bartering  in  their  international  trade  with  the  more 
advanced  countries  should  therefore  be  seen  in  true  perspective,  as 
special  cases  arising  from  current  pressures  and  not  in  any  sense  a 
return  to  the  old  pre-monetary  methods  of  barter.  For  most  people 
most  of  the  time  the  economic  clock  cannot  be  turned  back. 

Modern  barter  and  countertrading 

Having  thus  differentiated  between  modern  barter  where  the 
participants  are  fully  conversant  with  advanced  monetary  systems  and 
early  barter  where  such  knowledge  was  either  rudimentary  or  non- 
existent, we  may  now  turn  to  examine  a  few  of  the  more  salient 
examples  of  modern  barter  and  to  explain  the  reasons  for  this 
surprising  regression.  The  many  recurrent  and  the  few  persistent 
examples  of  barter  in  modern  communities  are  most  commonly  though 



not  exclusively  associated  with  monetary  crises,  especially  runaway 
inflation,  which  at  its  most  socially  devastating  climax  destroys  the 
existing  monetary  system  completely.  Thus  in  the  classic  and  well- 
documented  case  of  the  German  inflation  of  1923  the  'butter'  standard 
emerged  as  a  more  reliable  common  measure  of  value  than  the  mark. 
Towards  the  end  of  the  Second  World  War  and  immediately  after,  much 
of  retail  trade  in  continental  Europe  was  based  on  cigarettes  -  virtually 
a  Goldflake  or  a  Lucky  Strike  standard,  which  also  formed  a  welcome 
addition  to  the  real  pay  of  the  invading  soldiers.  A  most  interesting  and 
detailed  account  of  the  cigarette  currency  as  seen  from  inside  a  German 
prisoner  of  war  camp  was  published  by  R.  A.  Radford  (1945,  189-201). 

Such  inflationary  conditions  were  widespread  from  western  Europe 
through  China  to  Japan  at  this  time,  but  the  world  record  for  an 
inflationary  currency  belongs  to  Hungary.  Its  note  circulation  grew 
from  12,000  million  pengo  in  1944  to  36  million  million  in  1945.  In  1946 
it  reached  1,000  million  times  the  1945  total  until  at  its  maximum  it 
came  to  a  figure  containing  twenty-seven  digits.  Its  largest 
denomination  banknote  issued  in  1946,  was  for  100  million  'bilpengos', 
which  since  the  bil  is  equivalent  to  a  trillion  pengos,  was  actually  for 
100  quintillion  pengos  or  P.  100,000,000,000,000,000,000.  This 
astronomical  sum  was  in  fact  worth  at  most  only  about  £1  sterling. 
Little  wonder  that  in  such  circumstances  the  monetary  system 
temporarily  destroyed  itself  and  people  were  forced  to  revert  to  barter, 
at  least  for  use  as  a  medium  of  exchange  even  if  they  continued  to  use 
their  currency  as  a  unit  of  account,  though  even  here  for  the  shortest 
possible  space  of  time,  until  confidence  in  the  new  unit  of  currency,  the 
forint,  had  been  established. 

The  breakdown  in  multilateral  trading  in  the  Second  World  War  was 
mended  only  slowly  and  painfully  in  the  following  decade.  In  the  mean 
time,  as  Trued  and  Mikesell  (1955)  show,  bilateral  trade  agreements, 
most  of  which  included  some  form  or  other  of  barter,  became  very 
common.  In  fact,  these  authors  concluded  that  some  588  such  bilateral 
agreements  had  been  arranged  between  1945  and  the  end  of  1954. 
Many  of  these  involved  strange  exchanges  of  basic  commodities  and 
sophisticated  engineering  products,  such  as  that  arranged  by  Sir 
Stafford  Cripps  whereby  Russian  grain  was  purchased  in  return  for 
Rolls  Royce  Nene  jet  engines  (which  were  returned  with  interest  over 
Korea).  However,  these  awkward  methods  of  securing  international 
trade  were  first  thought  to  be  due  simply  to  the  inevitable  disruption  of 
the  war  and  would  fade  away  completely  in  time  as  the  normal  channels 
of  peacetime  trade  were  reopened.  From  the  end  of  the  1950s  to  the 
1970s  this  faith  was  justified,  and  it  therefore  occasioned  some  surprise 



when  new  forms  of  barter  and  'countertrading'  began  to  grow  again  in 
the  1970s  and  persisted  strongly  into  the  1980s. 

By  1970  a  new  growth  in  international  barter  was  already  becoming 
obvious,  with  the  London  Chamber  of  Commerce  having  noted  some 
450  such  deals  during  the  course  of  the  previous  year,  a  rate  about 
twenty  times  the  pre-war  average.  Already  there  were  some  forty 
companies  in  the  City  of  London  actively  engaged  in  international 
barter.  The  Financial  Times  (11  May  1970),  reporting  on  this  new 
growth  in  barter,  commented  that  'We  have  moved  on  from  the  days  in 
which  beads  were  offered  for  mirrors  to  ones  in  which  heavily  flavoured 
Balkan  tobacco  is  offered  for  power  stations  and  when  apples  are 
offered  for  irrigation.'  The  same  article  reported  that  a  conference  on 
barter,  arranged  by  the  London  Chamber  of  Commerce  was  heavily 
oversubscribed,  with  more  than  300  representatives  present,  including 
clearing  and  merchant  bankers,  members  of  the  Board  of  Trade  and,  of 
course,  academics. 

Most  of  the  countries  then  involved  in  barter  -  the  eastern  bloc,  Iran, 
Algeria,  Brazil  and  so  on  -  continued  to  figure  prominently  a  decade  or 
so  later.  Thus  the  Morgan  Guarantee  Survey  of  October  1978  reported 
yet  A  New  Upsurge'  in  barter  and  countertrade,  'an  ancient  custom 
that  suddenly  is  enjoying  new  popularity'.  The  largest  of  the  deals 
described  was  a  $20  billion  barter  agreement  between  Occidental 
Petroleum  and  the  Soviet  Union.  In  a  similar  spirit,  Pepsico  arranged  a 
counter-purchase  agreement  with  USSR  selling  Pepsi-Cola  concentrate 
to  Russia  in  return  for  the  exclusive  right  to  import  Soviet  vodka.  Levi 
Strauss  licensed  trouser  production  in  Hungary  to  be  paid  for  by 
exports  to  the  rest  of  Europe,  while  International  Harvester  gave  Poland 
the  design  and  technology  to  build  its  tractors  in  return  for  a 
proportion  of  such  production.  'Iran,  short  of  hard  cash  but  swimming 
in  oil',  said  the  same  source,  'barters  to  the  tune  of  $4  billion  to  $5 
billion  a  year,  ladling  out  oil  for  everything  from  German  steel  plants 
and  British  missiles  to  American  port  facilities  and  Japanese 
desalinization  units.'  It  was  estimated  that  some  25  per  cent  of 
East-West  trade  involved  some  degree  of  barter,  with  the  proportion 
expected  to  rise  to  around  40  per  cent  in  the  course  of  the  1980s. 
Algeria,  India,  Iraq  and  a  number  of  South  American  countries  again 
figured  prominently  in  these  projections.  Five  years  later  the 
international  interest  in  barter  was  still  strong,  as  evidenced  by  the 
influential  papers  presented  at  a  conference,  'International  Barter  —  To 
Trade  or  Countertrade'  held  at  the  World  Trade  Centre,  New  York,  in 
September  1983,  dealing  with  the  barter  of  agricultural  commodities,  of 
metals  and  raw  materials,  of  the  special  role  of  trading  houses  assisting 



large  western  companies  to  trade  with  the  less  developed  countries,  and 
so  on. 

Among  the  many  reasons  for  this  rebirth  of  barter  are  first  the  fact 
that  external  trade  from  communist  countries  is  normally  'planned' 
bilaterally,  and  therefore  lends  itself  more  naturally  to  various  forms  of 
barter  than  does  multilateral,  freer,  trading.  This  is  of  course  why  the 
General  Agreement  on  Tariffs  and  Trade  sets  its  face  sternly  against 
bartering  arrangements.  Secondly,  the  international  trading  scene  has 
been  repeatedly  disrupted  by  the  various  vertical  rises  in  the  price  of 
crude  oil  since  it  first  quadrupled  in  1973.  Thirdly  the  relative  fall  in  the 
terms  of  trade  for  the  non-oil  Third  World  countries  caused  them 
greatly  to  increase  their  borrowing  from  European  and  American 
governments  and  banks,  a  proportion  of  this  being  in  'tied'  form,  and 
thus,  as  with  eastern  bloc  trade,  becoming  more  susceptible  to  bilateral 
bargaining.  Fourthly  the  rise  in  the  world  inflationary  tide,  together 
with  the  monetarist  response  in  the  main  trading  nations,  caused 
international  rates  of  interest  to  rise  to  unprecedented  levels  and  so 
raised  the  repayment  levels  of  borrowing  countries  to  heights  that  could 
not  readily  be  met  by  the  methods  of  normal  trading.  In  this  respect  the 
recrudescence  of  barter  is  simply  a  reflection  of  what  has  become  to  be 
known  since  the  early  1980s  as  the  'sovereign  debt'  problem  facing  the 
dozen  or  so  largest  international  debtor  countries,  including  especially 
Mexico,  Brazil  and  Argentina,  but  also  Poland,  India  and  Korea.  The 
fifth  and  fundamental  cause  (though  these  various  causes  are  interactive 
and  cumulative  rather  than  separate)  is  the  breakdown  in  the  stability 
of  international  rates  of  exchange  following  the  virtual  ending  of  the 
fixed-rate  Bretton  Woods  system  after  1971.  With  even  the  dollar  under 
pressure  there  was  no  readily  acceptable  stable  monetary  unit  useful  for 
the  longer-term  contracts  required  for  the  capital  goods  especially 
desired  by  the  developing  countries.  In  such  circumstances  the  direct 
exchange  of  specific  goods  or  services  for  other  such  goods  or  services, 
assisted  by  all  the  various  modern  financial  facilities,  seemed  in  certain 
special  cases  such  as  those  just  indicated,  to  be  preferable  either  to 
losing  custom  entirely  or  to  becoming  dependent  solely  on  abstract 
claims  to  paper  moneys  of  very  uncertain  future  value. 

Modern  retail  barter 

Most  of  the  examples  of  modern  barter  given  so  far  refer  to  wholesale 
trading  or  large-scale  international  projects.  Barter  however  continues 
to  show  itself  in  the  retail  trade  and  small-scale  level,  not  only  in  such 
self-evident  examples  as  the  swapping  of  schoolboy  treasures  but  also  in 



much  more  elaborate  and  organized  ways.  Of  particular  importance  in 
this  connection  is  Exchange  and  Mart,  an  advertising  medium  which 
has  been  published  in  Britain  every  Thursday  since  1868.  Jevons  himself 
noticed  it  in  its  earliest  years  and  was  obviously  puzzled  that  any  such 
publication,  partly  dependent  on  serving  such  a  long  obsolete  purpose 
as  barter,  should  appear  to  have  any  use  to  anyone.  He  refers  to 
Exchange  and  Mart  as  'a  curious  attempt  to  revive  the  practice  of 
barter'  and  quoted  examples  of  advertisers  offering  some  old  coins  and 
a  bicycle  in  exchange  for  a  concertina,  and  a  variety  of  old  songs  for  a 
copy  of  Middlemarch.  'We  must  assume',  concluded  Jevons,  'that  the 
offers  are  sometimes  accepted,  and  that  the  printing  press  can  bring 
about,  in  some  degree,  the  double  coincidence  necessary  to  an  act  of 
barter.'  He  would  no  doubt  be  surprised  that  the  publication  has  lasted 
for  well  over  a  century  and  that  on  average  each  issue  contains  around 
10,000  classified  advertisements.  However,  well  over  95  per  cent  of  these 
are  not  barter  items,  though  sufficient  remain  to  testify  to  its  original 
purpose.  A  few  examples  must  suffice:  'Exchange  land  for  car,  2/4 acres 
freehold  land,  Dorset,  for  low  mileage  280  SL  Mercedes  Benz',  'Lady's 
Rolex  8363/8,  exchange  computer,  word  processor,  etc.';  'Council 
exchange,  three  bedroomed  house,  Coventry,  for  same  Cornwall', 
obviously  a  very  good  swap  for  the  advertiser;  but  then,  possibly 
remembering  the  imperative  pressures  of  double  coincidence,  he  adds, 
'all  areas  considered'  {Exchange  and  Mart,  30  June  1983).  The  example 
of  council  house  exchanging  is  a  good  reminder  of  what  happens  in  a 
constrained  situation  where  the  normal  market  forces  cannot  freely 
operate.  In  these  circumstances  barter  offers  a  way  out. 

A  further  reason  for  the  re-emergence  of  barter  in  recent  years  may 
be  seen  as  a  by-product  of  the  so-called  'black  or  informal  economy'. 
According  to  Adrian  Smith  'the  informal  economy  can  be  seen  as  one  of 
the  main  trends  in  economic  evolution  today,  going  with  the  continuous 
shrinkage  in  terms  of  employment  and  value  added,  of  the  production 
of  goods  and  the  corresponding  growth  of  recorded  employment  in  the 
service  sector'  (Adrian  Smith  1981).  A  contributory  factor  was  tax 
evasion.  Smith  estimated  that  the  informal  economy  represented  about 
3  per  cent  of  the  economy  of  the  USA,  between  2  and  IVz  per  cent  of 
that  of  UK,  10  per  cent  for  France  and  as  much  as  15  per  cent  for  Italy, 
though  by  the  very  nature  of  the  'hidden'  economy  such  estimates  could 
be  hardly  more  than  partly  informed  guesses.  With  regard  to  the 
importance  of  changes  in  employment  in  recent  years  the  present  writer 
has  pointed  out  that  'In  little  over  a  decade  from  1971  Britain  has  lost 
almost  two  million  jobs  from  manufacturing  -  a  devastating  change; 
while  almost  as  significant  has  been  the  good  news  of  a  gain  of  around 



one-and-three-quarter  million  jobs  in  services  ...  a  sort  of  industrial 
revolution  in  reverse'  (Davies  and  Evans  1983).  Such  a  massive  switch 
has  provided  a  wealth  of  opportunity  for  informal  economic  activities. 
Although  only  a  very  small  proportion  of  the  hidden  economy  would 
involve  barter,  the  point  to  bear  in  mind  is  that,  though  small,  it  seems 
to  be  growing  vigorously.  We  may  conclude  therefore  by  saying  that 
although  modern  man  cannot  live  by  barter  alone,  it  may  still  make  life 
more  bearable  for  a  minority  of  hard-pressed  traders  and  heavily  taxed 
citizens  in  certain  but  increasingly  limited  circumstances. 

Primitive  money:  definitions  and  early  development 

Perhaps  the  simplest,  most  straightforward  and,  for  historical  purposes 
certainly,  the  most  useful  definition  of  primitive  money  is  that  given  by 
P.  Grierson,  Professor  of  Numismatics  at  Cambridge,  viz.,  'all  money 
that  is  not  coin  or,  like  modern  paper  money,  a  derivative  of  coin'  (1977, 
14).  Even  this  definition  however  fails  to  allow  for  the  ancient  rather 
sophisticated  banking  systems  that  preceded  the  earliest  coins  by  a 
thousand  years  or  more.  Nevertheless,  with  that  single  exception,  it 
serves  well  for  distinguishing  in  a  general  way  between  primitive  and 
more  advanced  money,  whether  ancient  or  modern,  and  in  its  clarity 
and  simplicity  is  perhaps  preferable  to  the  almost  equally  broad  but 
rather  more  involved  definition  suggested  by  Einzig,  as  'A  unit  or  object 
conforming  to  a  reasonable  degree  to  some  standard  of  uniformity, 
which  is  employed  for  reckoning  or  for  making  a  large  proportion  of  the 
payments  customary  in  the  community  concerned,  and  which  is 
accepted  in  payment  largely  with  the  intention  of  employing  it  for 
making  payments'  (1966,  317). 

On  one  thing  the  experts  on  primitive  money  all  agree,  and  this  vital 
agreement  transcends  their  minor  differences.  Their  common  belief 
backed  up  by  the  overwhelming  tangible  evidence  of  actual  types  of 
primitive  moneys  from  all  over  the  world  and  from  the  archaeological, 
literary  and  linguistic  evidence  of  the  ancient  world,  is  that  barter  was 
not  the  main  factor  in  the  origins  and  earliest  developments  of  money. 
The  contrast  with  Jevons,  with  his  predecessors  going  back  to  Aristotle, 
and  with  his  followers  who  include  the  mainstream  of  conventional 
economists,  is  clear-cut.  Typical  of  the  latter  approach  is  that  of 
Geoffrey  Crowther,  formerly  editor  of  The  Economist,  who,  in  his 
Outline  of  Money,  begins  with  a  chapter  entitled  the  'Invention  of 
money'  and  insists  that  money  'undoubtedly  was  an  invention;  it 
needed  the  conscious  reasoning  power  of  Man  to  make  the  step  from 
simple  barter  to  money-accounting'  (Crowther  1940,  15).  It  was 



possibly  such  gross  oversimplifications  that  caused  Paul  Samuelson,  in 
an  article  on  'Classical  and  neo-classical  monetary  theory'  to  contrast 
'Harriet  Martineau.  who  made  fairy  tales  out  of  economics'  with  those 
'modern  economists  who  make  economics  out  of  fairytales'  (see  Clower 

The  most  common  non-economic  forces  which  gave  rise  to  primitive 
money  may  be  grouped  together  thus:  bride-money  and  blood-money; 
ornamental  and  ceremonial;  religious  and  political.  Objects  originally 
accepted  for  one  purpose  were  often  found  to  be  useful  for  other  non- 
economic  purposes,  just  as  they  later,  because  of  their  growing 
acceptability,  began  to  be  used  for  general  trading  also.  We  face 
considerable  difficulty  in  trying  to  span  the  chronological  gap  which 
separates  us  from  a  true  understanding  of  the  attitudes  of  ancient  man 
towards  religious,  social  and  economic  life,  and  similarly  with  regard  to 
the  cultural  gap  which  separates  us  from  existing  or  recent  primitive 
societies.  In  both  ancient  and  modern  primitive  societies  human  values 
and  attitudes  were  such  that  religion  permeated  almost  the  whole  of 
everyday  life  and  could  not  as  easily  be  separated  from  political,  social 
and  economic  life  in  the  way  that  comes  readily  to  us  with  our  tendency 
for  facile  categorization.  To  us  the  categories  may  seem  sensible  and 
justified  and  no  doubt  they  help  us  to  appreciate  the  role  of  money  (or 
of  other  such  institutions)  when  we  relate  them  to  methods  of  thought 
and  social,  religious,  political  and  economic  systems  with  which  we  are 
familiar.  But  there  are  limits  to  our  ability  to  force  ancient  or  recent 
primitive  fashions  into  modern  moulds.  In  particular,  primitive  moneys 
originating  from  one  source  or  for  one  use  came  to  be  used  for  similar 
kinds  of  payments  elsewhere  spreading  gradually  without  necessarily 
becoming  generalized.  For  example,  moneys  first  used  for  ceremonial 
purposes,  because  of  their  prestigious  role  were  frequently  ornamental 
also,  these  purposes  being  mutually  reinforcing.  Mrs  A.  Hingston 
Quiggin,  in  her  readable  and  well-illustrated  survey  of  Primitive  Money 
gives  a  number  of  examples  'to  show  how  an  object  can  be  at  the  same 
time  currency  or  money,  a  religious  symbol  or  a  mere  ornament' 
(Quiggin  1949,  2).  However,  the  penalty  of  widening  the  functions  of 
primitive  moneys  from  their  original  rather  narrow  group  of  roles  lay  in 
weakening  their  force  in  their  main  function.  It  was  a  matter  of 
balancing  the  formidable  powers  of  money  in  one  narrow  group  of,  say, 
religious  and  ceremonial  roles  against  the  greater  usefulness  which 
followed  from  extending  the  currency  of  the  money  at  the  cost  of  losing 
part  of  its  original  religious  or  ceremonial  associations. 

Because  of  this  conflict  a  division  arose  (though  it  had  long  been 
latent)  between  the  experts  on  primitive  economies  as  to  whether  or  not 



to  exclude  the  whole  body  of  relatively  narrowly  functioning  primitive 
objects  from  being  called  'money'  at  all  (see  G.  Dalton  1967).  Some 
would  argue  that  unless  such  objects  can  be  seen  to  have  performed  a 
fairly  wide  variety  of  functions  they  should  not  really  be  classed  even  as 
primitive  money.  This  view  seems  to  be  far  too  narrow  and  rules  out 
much  of  the  long  evolutionary  story  of  monetary  development.  For 
money  did  not  spring  suddenly  into  full  and  general  use  in  any 
community,  and  primitive  man  commonly  used  a  number  of  different 
kinds  of  money  for  different  purposes,  some  of  which  are  almost 
certainly  older  than  others.  Even  today  we  have  not  arrived  at  universal 
money,  nor  even  universal  banking,  and  just  as  we  buy  houses  by  going 
to  see  a  building  society  and  insurance  through  the  insurance  agent 
coming  to  see  us,  so  primitive  men  saw  different  moneys  being  naturally 
confined  to  different  groups  of  uses.  The  origins  of  these  were  quite 
varied,  and  although  we  emphasize  that  many  of  the  most  important  of 
these  origins  were  non-commercial,  they  established  concepts,  attitudes 
and  ideas  which  conditioned  the  growth  in  the  use  of  a  huge  variety  of 
different  kinds  of  'money'  in  ancient  and  modern  primitive 

Loving  and  fighting  are  the  oldest,  most  exciting  (and  usually 
separate)  of  man's  activities,  so  that  it  is  perfectly  natural  to  find  that 
payments  associated  with  both  are  among  the  earliest  forms  of  money. 
Thus  'Wergeld',  a  Germanic  word  for  the  compensation  or  fine 
demanded  for  killing  a  man,  was  almost  universally  present  in  ancient 
as  in  modern  primitive  societies.  Our  word  to  'pay'  is  derived  from  the 
Latin  'pacare',  meaning  originally  to  pacify,  appease  or  make  peace 
with  -  through  the  appropriate  unit  of  value  customarily  acceptable  to 
both  parties  involved.  Similarly  payments  to  compensate  the  head  of  a 
family  for  the  loss  of  a  daughter's  services  became  the  origin  of  'bride- 
price'  or  'bride-wealth'.  The  pattern  of  payment  for  human  services  was 
sometimes  broadened  to  include  the  purchase  or  sale  of  slaves,  who  for 
centuries  acted  as  'walking  cheque-books'.  Although  there  may  be 
room  to  doubt  the  extent  of  the  direct  connections  between  the 
compensatory  payments  of  wergeld  and  bride-wealth,  a  number  of 
social  anthropologists  argue,  with  many  supportive  examples,  that  they 
were  closely  related  both  in  the  nature  and  scale  of  payments.  Thus 
Grierson  cites  among  a  number  of  similar  examples  the  custom  of  the 
Yurok  Indians  of  California  where  wergeld  was  identical  with  bride- 
price.  He  admits,  however,  that  such  identities  are  not  evident 
everywhere:  one  could  hardly  expect  it. 

Over  the  course  of  time,  paying  for  injuring,  killing,  marrying  and 
enslaving  became  elaborated  into  different  values  according  to  the 



customs  of  the  community  concerned,  with  the  tribal  chief  or  head  of 
state  intervening  either  to  accept  the  payments  or  to  lay  down  the  law  as 
to  what  was  or  was  not  acceptable  compensation.  Tribute  or  taxation, 
ransoms,  bribery  and  various  forms  of  protection  payments  such  as 
those  which  we  later  came  to  know  as  'Danegeld',  were  all  various 
means  by  which  the  early  state  became  involved  in  the  extension  of  the 
geographical  area  of  the  peaceful  enforcement  of  law  and  hence 
confirmed  the  greater  role  for  the  monetary  payments  that  such  a  peace 
made  possible.  As  we  approach  the  medieval  period  these  laws, 
specifying  the  amount  and  types  of  indemnities,  were  encoded.  Such 
codes,  extending  from  the  Celtic  laws  of  Ireland  and  Wales  eastward 
through  those  of  Germanic  and  Scandinavian  tribes  to  central  Russia, 
exhibit  basic  similarities  and,  in  contrast  with  the  ancient  Mosaic  laws 
which  demanded  an  eye  for  an  eye  and  a  tooth  for  a  tooth,  they 
provided  peacemaking  monetary  alternatives.  The  role  of  the  state  in 
thus  spreading  the  use  of  money  has  been  stressed  by  generations  of 
economists,  but  by  none  more  than  G.  F.  Knapp. 

Knapp's  State  Theory  of  Money  considerably  influenced  Keynes, 
through  whose  efforts  the  work  was  translated  into  English.  Knapp  was 
nothing  if  not  forthright:  'Money  is  a  creature  of  law  .  .  .  the 
numismatist  usually  knows  nothing  of  currency,  for  he  has  only  to  deal 
with  its  dead  body'  (1924,  1).  This  view  of  the  role  of  the  state  as  the 
sole  creator  and  guarantor  of  money,  although  useful  as  a  corrective  to 
the  metallistic  theories  current  at  the  end  of  the  nineteenth  century, 
nevertheless  carries  the  state  theory  of  money  to  an  absurd  extreme,  a 
criticism  of  which  the  author  himself  appears  to  be  aware  since  in  his 
preface  he  defends  himself  with  the  plea  that  'a  theory  must  be  pushed 
to  extremes  or  it  is  valueless'  -  surely  a  most  dangerously  dogmatic 
assertion.  The  main  point  at  issue,  however,  is  simply  this,  that  right 
from  the  inception  of  money,  from  ancient  down  to  modern  times,  the 
state  has  a  powerful,  though  not  omnipotent,  role  to  play  in  the 
development  of  money.  Yet  neither  ancient  money  nor,  despite  Sir 
Stafford  Cripps's  view  to  the  contrary,  even  the  Bank  of  England,  is  a 
mere  creature  of  the  state. 

Knapp's  pre-monetarist  emphasis  on  the  fundamental  role  of  the 
state  in  the  creation  of  money  does  at  least  consistently  reflect  the 
tendency  of  German  economists  in  the  late  nineteenth  and  early 
twentieth  centuries  to  extol  the  power  of  the  state.  Modern  monetarists 
such  as  Friedman  however,  strongly  uphold  the  supremacy  of  the 
market  and  at  the  same  time  seek,  inconsistently,  to  minimize  the  role  of 
the  state  -  except  in  monetary  matters:  an  exception  which  fits  ill  with 
their  basic  philosophy.  Whatever  barriers  the  state  -  or  academics  - 



may  erect  within  which  to  confine  money,  money  has  an  innate  ability 
demonstrated  not  only  during  recent  decades  but  by  thousands  of  years 
of  history  to  jump  over  them.  Experts  on  primitive  and  modern  money 
disagree  where  to  draw  the  line  between  money  and  quasi-money 
precisely  because  it  is  in  the  nature  of  money  to  make  any  such  clear 
distinction  impossible  to  uphold  for  any  length  of  time.  Money  is  so 
useful  -  in  other  words,  it  performs  so  many  functions  -  that  it  always 
attracts  substitutes:  and  the  narrower  its  confining  lines  are  drawn,  the 
higher  the  premium  there  is  on  developing  passable  substitutes. 

Economic  origins  and  functions 

Having  emphasized  the  non-economic  origins  of  money  to  the  extent 
required  to  counteract  the  traditional  strongly  entrenched  viewpoint, 
we  may  now  more  briefly  examine  its  economic  or  commercial  origins, 
since  these  require,  at  this  stage,  little  elaboration.  Money  has  many 
origins  -  not  just  one  -  precisely  because  it  can  perform  many  functions 
in  similar  ways  and  similar  functions  in  many  ways.  As  an  institution, 
money  is  almost  infinitely  adaptable.  This  helps  to  explain  the  wide 
variety  of  origins  and  the  vast  multitude  of  different  kinds  of  objects 
used  as  primitive  money.  These  include:  amber,  beads,  cowries,  drums, 
eggs,  feathers,5  gongs,  hoes,  ivory,  jade,  kettles,  leather,  mats,  nails, 
oxen,  pigs,  quartz,  rice,  salt,  thimbles,  umiaks,  vodka,  wampum,  yarns 
and  zappozats,  which  are  decorated  axes  -  to  name  but  a  minute 
proportion  of  the  enormous  variety  of  primitive  moneys;  and  none  of 
this  alphabetical  list  includes  modern  examples  like  gold,  silver  or 
copper  coinage  nor  any  of  the  230  or  so  units  of  paper  currency. 

Table  1.1  Functions  of  money 

Specific  functions  (mostly  micro-economic) 

1  Unit  of  account  (abstract) 

2  Common  measure  of  value  (abstract) 

3  Medium  of  exchange  (concrete) 

4  Means  of  payment  (concrete) 

5  Standard  for  deferred  payments  (abstract) 

6  Store  of  value  (concrete) 

5  e.g.  the  Quetzal  used  by  the  Aztecs  as  currency  and  adopted  as  the  modern  currency 
of  Guatemala. 



General  functions  (mostly  macro-economic  and  abstract) 

7  Liquid  asset 

8  Framework  of  the  market  allocative  system  (prices) 

9  A  causative  factor  in  the  economy 

10  Controller  of  the  economy 

Because  it  appeared  that,  at  some  time  or  place,  almost  anything  has 
acted  as  money,  this  misled  some  writers,  including  especially  the 
French  economist,  Turgot,  to  conclude  that  anything  can  in  actual 
practice  act  as  money.  One  must  admit  that  in  any  logical  (not 
chronological)  list  of  monetary  functions,  such  as  that  suggested  in 
table  1.1,  that  of  acting  as  a  unit  of  account  would  normally  come  first. 
It  follows  from  the  fact  that  money  originated  in  a  variety  of  different 
ways  that  there  is  little  purpose  in  the  insistence  shown  by  a  number  of 
monetary  economists  in  analysing  which  are  the  supposed  primary  or 
original  and  which  are  the  supposed  secondary  or  derived  functions  (see 
Goldfield  and  Chandler  1981).  What  is  now  the  prime  or  main  function 
in  a  particular  community  or  country  may  not  have  been  the  first  or 
original  function  in  time,  while  what  may  well  have  been  a  secondary  or 
derived  function  in  one  place  may  have  been  in  some  other  region  the 
original  which  itself  gave  rise  to  a  related  secondary  function.  Here 
again  there  is  exhibited  a  tendency  among  certain  economists  to 
compare  what  appears  in  today's  conditions  to  be  the  logical  order  with 
the  actual  complex  chronological  development  of  money  over  its  long 
and  convoluted  history.  The  logical  listing  of  functions  in  the  table 
therefore  implies  no  priority  in  either  time  or  importance,  for  those 
which  may  be  both  first  and  foremost  reflect  only  their  particular  time 
and  place. 

Turning  back  now  to  the  first  function  listed,  it  is  easy  to  see  that, 
since  an  accounting  or  reckoning  unit  is  of  course  abstract,  it  has  in 
theory  no  physical  constraints.  Theoretically  one  could  easily  make  up 
any  word  and  apply  this  as  an  accounting  record.  As  a  matter  of  fact  in 
recent  years  the  European  monetary  authorities  co-operated  in 
producing  just  such  a  unit  -  and  called  it  the  European  'unit  of 
account',  later  becoming  the  Ecu,  a  brief  forerunner  of  the  euro.  There 
is  an  essential  connection  but  not  necessarily  an  identity  between 
counting  and  measuring  money. 

Thus  cowries,  coins  and  cattle  were  (and  are)  usually  counted, 
whereas  grain,  gold  and  silver  were  usually  weighed:  hence  come  not 
only  our  words  for  'spend',  'expenditure',  etc.,  from  the  Latin 
'expendere'  but  also  originally  'pound',  as  being  a  defined  weight  of 
silver.  But  acting  as  a  unit  of  account  is  only  one  of  money's  functions 



and  although  anything  picked  at  random,  whether  abstract  or  concrete, 
admittedly  could  act  as  such  a  unit  -  and  if  a  sensible  choice,  might  do 
so  admirably  -  this  would  not  necessarily  mean  that  it  could  perform 
satisfactorily  any  or  all  of  money's  many  other  functions.  Although 
acting  as  a  unit  of  account  or  as  a  common  measure  of  value  -  which 
are  two  ways  of  looking  at  the  same  concept  -  are  both  abstractions,  it 
added  greatly  to  the  convenience  of  money  if  the  normally  concrete 
media  of  exchange  and/or  the  means  of  payment  carried  the  same 
names  as,  or  were  at  least  consistently  related  to,  money's  two  abstract 
qualities  of  accounting  and  measuring.  By  that  is  meant  that,  for 
example,  one's  bank  balance  is  kept  in  pounds  (including  subdivisions), 
that  prices  are  quoted  in  pounds,  that  one  is  paid  in  pounds,  and  that 
one  pays  others  for  purchases  or  services  also  in  pounds.  But  for  around 
half  the  long  monetary  history  of  the  £  sterling  in  Britain  this  was  not 
the  case:  there  was  no  such  thing  as  a  pound;  it  existed  only  as  a  unit  of 
account.  There  are  numerous  similar  examples. 

As  well  as  the  specific  functions  of  money  listed  in  table  1.1  there  are 
also  a  number  of  more  general  functions.  All  these  various  functions 
and  the  changing  relationships  between  them  will  form  the  main 
subject  of  the  remainder  of  our  study,  stemming  from  cowries  to  Euro- 
currencies. However  a  few  further  important  aspects  of  money,  not 
captured  in  the  given  categories,  need  to  be  at  least  hinted  at  in  this 
introductory  chapter,  namely  first  the  dynamic  quicksilver  nature  of 
money  -  or  to  vary  the  analogy,  its  chameleon-like  adaptability.  Money 
designed  for  one  specific  function  will  easily  take  on  other  jobs  and 
come  up  smiling.  Old  money  very  readily  functions  in  new  ways  and 
new  money  in  old  ways:  money  is  eminently  fungible. 

Let  us  come  now  to  the  little  matter  of  definition:  what,  after  all  is 
money?  The  form  in  which  the  question  is  put  tends  to  indicate  that  the 
proper  place  for  a  definitive  definition,  as  it  were,  is  at  the  end  rather 
than  near  the  beginning  of  our  study;  but  the  dictates  of  custom  would 
suggest  the  need  at  least  for  this  preliminary  definition:  Money  is 
anything  that  is  widely  used  for  making  payments  and  accounting  for 
debts  and  credits. 

The  quality-to-quantity  pendulum:  a  metatheory  of  money 

Money  is  the  mechanism  by  which  markets  are  most  perfectly  cleared, 
whereby  the  forces  of  demand  and  supply  continually  and  competitively 
fight  themselves  out  towards  the  draw  known  as  equilibrium.  As  we 
have  just  seen  with  regard  to  barter,  no  other  mechanism  is  nearly  as 
good  as  money  in  this  function  of  sending  early  and  appropriate  signals 



to  buyers  and  sellers  through  price  changes,  so  helping  smoothly  to 
remove  excess  balances  of  demand  or  supply.  Markets  are,  however, 
rarely  perfect,  and  in  practice  even  money  cannot  remove  all  the 
uncertainty  surrounding  them.  There  are  three  fundamental  reasons  for 
market  uncertainty.  First,  the  full  information  and  correct 
interpretation  necessary  for  perfect  balance  are  costly;  secondly,  the 
aggregate  flow  of  goods  and  services  which  form  the  counterpart  to  the 
total  quantity  of  money  changes  over  time  in  volume  and  trading 
velocity;  and  thirdly  and  most  importantly  money  is  by  its  very  nature 
dynamically  unstable  in  volume  and  velocity,  in  quantity  and  quality. 

We  shall  see  as  our  history  of  money  unfolds  that  there  is  an 
unceasing  conflict  between  the  interests  of  debtors,  who  seek  to  enlarge 
the  quantity  of  money  and  who  seek  busily  to  find  acceptable 
substitutes,  and  the  interests  of  creditors,  who  seek  to  maintain  or 
increase  the  value  of  money  by  limiting  its  supply,  by  refusing 
substitutes  or  accepting  them  with  great  reluctance,  and  generally 
trying  in  all  sorts  of  ways  to  safeguard  the  quality  of  money.  Although 
most  consumers  and  producers  are  at  some  stage  both  debtors  and 
creditors  it  is  their  net  power  that  influences  the  value  of  money.  What  is 
most  interesting  in  historical  perspective  is  to  analyse  the  long-term 
pendulum  movements  between  the  net  forces  of  debtors,  which  cause 
the  pendulum  to  swing  excessively  towards  depreciating  the  value  of 
money,  and  the  net  forces  of  creditors  which  act  strongly  the  other  way 
to  raise  the  unit  value  of  money  or  at  least  to  moderate  the  degree  of 
depreciation.  While  the  historical  record  will  confirm  popular 
condemnation  of  the  inflationary  evils  of  an  excessive  quantity  of 
money,  it  will  also  point  to  the  more  hidden  but  equally  baneful  effects 
when  excessive  emphasis  on  quality  has  severely  restricted  the  growth  of 
the  economy. 

Although  monetary  stability  may  be  to  the  long-term  advantage  of 
the  majority,  there  are  always  strong  minorities  who  tip  the  net  balance 
of  power  and  who  wish  to  increase  or  decrease  the  value  of  money.  They 
thus  help  to  push  the  pendulum  into  a  state  of  almost  perpetual 
motion.  During  all  periods  of  history  the  debtors  are  generally  much 
poorer  and  always  much  more  numerous  than  the  normally  more 
powerful  and  less  numerous  creditors,  even  though  by  definition  the 
total  of  debts  and  credits  is  the  same.  In  this  context  it  is  the 
distribution  which  matters,  while  it  should  be  remembered  that  debtors 
can  and  often  do  include  the  most  powerful  of  politicians  and  the  most 
ambitious  of  entrepreneurs.  For  long  periods  of  history  the  most 
important  net  debtor  has  been  the  single  monarch  or  the  composite 
state,  each  possessed  with  a  varying  degree  of  sovereign  power  to 



determine  the  supply  of  money,  though  never  with  complete  control 
over  the  acceptability  of  money  substitutes.  Not  surprisingly  when  the 
state  becomes  a  net  debtor  the  pendulum  tends  to  widen  its  oscillations. 

An  indebted  monarch  or  government  is  usually  able  not  only  to 
reduce  the  real  burden  of  its  own  debt,  but  can  as  a  bonus  consciously 
or  unconsciously  court  popularity  with  the  indebted  masses  by 
allowing  the  net  pressures  of  indebtedness  to  increase  the  supply  of 
money  or  the  acceptance  of  substitutes  and  so  lift  some  of  the  heavy 
burden  of  debt  from  the  shoulders  of  the  poor  masses  -  and  from  many 
up-and-coming  entrepreneurs.  There  is  therefore  a  secular  tendency  for 
money  to  depreciate  in  value,  a  tendency  halted  or  partially  reversed 
whenever  net  creditors,  such  as  large  landowners,  rich  moneylenders 
and  well-established  bankers,  are  in  the  ascendancy  or  can  bring  their 
usually  powerful  influence  to  bear  upon  governments. 

Corresponding  therefore  to  our  simple  preliminary  definition  of 
money  we  have  a  simple  theoretical  framework  for  assessing  changes  in 
the  value  of  money,  namely  the  'pendulum  theory'  or  more  fully,  the 
'oscillating  debtor-quantity/creditor-quality  theory'.  At  any  given 
time,  especially  after  drastic  changes  have  taken  place  in  monetary 
affairs,  a  whole  host  of  theories  may  arise  in  attempts  to  explain  the 
existing  value  of  money.  Given  a  wider  historical  perspective  these 
temporary  theories,  whatever  they  are  called,  group  themselves  with 
little  distortion  into  either  debtor-quantity  or  creditor-quality 
theories.  The  pendulum  theory  brings  these  two  apparently 
contradictory  and  divergent  sets  of  theories  together  into  a  symbiotic 
union.  It  indicates  why  these  temporary  theories,  like  certain  aspects  of 
money  itself,  tend  to  rather  extreme  oscillations,  and  helps  to  explain 
why  such  opposite  theories  tend  to  follow  each  other  in  repeated 
alternations  over  the  centuries,  interspersed  with  the  occasional  long 
period  of  comparative  stability. 

The  pendulum  theory  is  therefore  of  particular  relevance  to  the  long 
perspectives  of  monetary  history  and  yet  may  shine  some  light  on 
current  financial  controversy,  for  it  is  within  the  vectors  of  that  wider 
theory  that  the  shorter-term,  fashionable  'temporary'  theories 
appropriate  to  the  particular  period  in  question  play  out  their  powerful 
but  inevitably  limited  roles.  In  this  sense  the  pendulum  theory  acts  as  a 
metatheory  of  money,  i.e.  a  more  general  theory  comprising  sets  of 
more  limited,  partial  theories,  which  latter  spring  out  of  the  special 
circumstances  of  their  time.  The  enveloping  pendulum  or  metatheory 
also  explains  why  the  usual  theories  of  money,  despite  being  so 
confidently  held  at  one  time,  tend  to  change  so  drastically  and 
diametrically  (and  therefore  so  puzzlingly  to  the  uninitiated)  to  an 



equally  accepted  but  opposite  theory  within  the  time  span  appropriate 
to  historical  investigation.  The  longer  view  given  by  the  pendulum 
theory  may  also  help  to  correct  the  dangerous  'short-termism'  present 
in  much  current  financial  theory  and  practice. 

The  most  recent,  and  therefore  perhaps  the  most  obvious,  example  of 
the  workings  of  the  pendulum  theory  can  be  seen  in  the  enormous 
swing  from  almost  universal  acceptance  in  theory  and  policy  of  the 
broadly  based  but  temporary  'liquidity  theory  of  money'  held  by  the 
Keynesians  to  the  later  fashionable,  widely  based  acceptance  in  theory 
and  still  more  in  practice  of  the  very  narrowly  based  monetarist 
theories  of  Milton  Friedman  and  his  followers.  Another  recent  example 
of  the  age-old  principle  of  the  pendulum  may  be  seen  in  the  much 
discussed  tendency  of  the  external  values  of  currencies  to  'overshoot' 
their  equilibrium  values  in  the  foreign  exchange  markets  once  they 
became  free  to  move  away  from  much  of  their  fixed-rate  anchors.  The 
extreme  volatility  of  rates  of  interest  in  much  of  the  post-war  period 
points  to  a  third  instance  of  the  pendulum  in  vigorous  'overkill'  action. 

In  the  chronology  of  oscillation,  quality  comes  first;  for  if  whatever  is 
intended  to  act  as  money  is  not  desired  strongly  enough  to  be  held  for 
that  purpose,  it  will  fail  to  be  selected  long  enough  to  be  imitated.  Once 
the  selection  is  confirmed  by  general  acceptance  then,  sooner  or  later, 
depending  on  the  society  in  question,  quality  faces  competition  from  an 
increased  quantity  of  substitutes.  Monetary  imitation  is  the  most 
effective  form  of  flattery.  As  quantity  increases  so  quality  generally  falls, 
and  if  the  process  is  speeded  up,  the  currency  may  become  completely 
discredited  and  useless,  requiring  replacement  by  a  new  monetary  form 
which  emphasizes  its  special  quality;  hence  the  periodic  currency 
reforms  which  punctuate  monetary  history,  followed  by  eventual 

It  follows  from  the  pendulum  theory  that  the  nearer  the  money 
supply  is  kept  to  its  equilibrium  position,  the  more  moderate  will  be  the 
policy  measures,  such  as  variations  in  the  official  rate  of  interest, 
required  to  re-establish  equilibrium.  Conversely,  a  wide  swing  away 
from  equilibrium  will  require  such  strong  counteracting  policy 
measures,  such  as  very  large  changes  in  interest  rates,  that  dangerous 
'overshooting'  or  'overkill'  will  commonly  result.  A  monetary  stitch  in 
time  saves  nine. 

Finally  it  is  of  the  utmost  significance  to  realize  that  because  the 
monetary  pendulum  is  rarely  motionless  at  the  point  of  perfect  balance 
between  the  conflicting  interests  of  creditors  and  debtors,  so  money 
itself  is  rarely  'neutral'  in  its  effects  upon  the  real  economy  and  upon 
the  fortunes  of  different  sections  of  the  community,  for  all  sections  are 



involved  all  the  time  in  their  daily  lives.  Monetary  changes  of  any 
substantial  weight  could  only  be  neutral  if  everyone  had  the  same 
amounts,  incomes,  wealth,  debts,  expectations,  etc.,  as  everyone  else:  an 
impossibility.  On  this  point  Kindelberger  quotes  Schumpeter  as 
'doubting  that  money  can  ever  be,  neutral'.  (See  Kindelberger,  C.  P.,  A 
Financial  History  (1994  ed.,  p.  4).)This  feature  further  enhances  the 
importance  of  money  in  economic,  social  and  political  history. 


From  Primitive  and  Ancient  Money  to 
the  Invention  of  Coinage,  3000—600  bc 

Pre-metallic  money 

If  economics,  defined  briefly,  is  the  logic  of  limited  resource  usage, 
money  is  the  main  method  by  which  that  logic  is  put  to  work.  In 
commonsense  terms,  therefore,  economics  is  very  largely  concerned 
with  how  to  make  the  most  of  one's  money,  since  the  allocation  of 
resources  and  changes  in  the  valuation  of  assets  necessarily  involve 
accountancy  and  payment  systems  based  on  money,  although  the 
degree  to  which  such  allocations  are  left  to  the  freedom  of  the  market, 
and  therefore  the  demands  which  are  made  upon  the  efficiency  of  the 
monetary  system,  will  vary  from  place  to  place  and  age  to  age.  It  is 
important,  however,  to  realize  that  the  close  relationship  between  the 
development  of  money  and  its  efficient  use  in  the  allocation  of 
resources  is  complex  and  convoluted.  In  particular  the  logical  and 
chronological  developments  are  not  exactly  parallel.  Thus,  as  has 
already  been  noted,  one  would  logically  expect  all  pre-metallic  moneys 
to  be  associated  exclusively  with  primitive  communities,  and  similarly 
all  metallic  money  to  be  associated  exclusively  with  more  advanced 
societies.  But  this  is  far  from  being  the  case,  and  the  logical  order  differs 
significantly  from  the  chronological.  Thus  the  development  of  banking 
in  Britain  followed  a  thousand  years  behind  the  introduction  and 
widespread  use  of  coinage.  To  us  this  seems  both  a  natural  and  a  logical 
process  of  development  and  we  may  at  first  find  it  difficult  to  believe 
that  that  process  could  be  reversed.  But  banking  in  Babylon  preceded 
the  'invention'  of  coinage  by  a  similarly  long  period.  Again,  we  find 
firms  in  Birmingham  in  the  first  decades  of  the  twentieth  century  still 
manufacturing  metallic  bracelets  for  use  as  primitive  forms  of  money 



among  certain  Nigerian  tribes,  in  preference  to  the  coinage  systems 
which  were  readily  available  for  their  use  and  which  the  state  authorities 
had  been  trying  to  enforce  with  little  success  for  many  years. 

When  we  come  to  look  at  many  of  the  earliest  types  of  coins,  we  shall 
see  that  these  were  produced  as  direct  imitations  of  those  primitive 
types  of  currency  with  which  the  communities  concerned  had  long  been 
familiar.  Primitive  moneys  may  be  recent,  banking  may  be  ancient. 
Consequently  in  seeking  to  combine  as  far  as  is  possible  the 
chronological  with  the  logical  stages  of  financial  development,  their 
sometimes  strongly  conflicting  currents  should  always  be  borne  in 
mind.  Even  in  our  own  days,  innovation  and  progress  are  not 
necessarily  synonymous  terms:  apparently  it  has  always  been  thus. 
Therefore,  in  presenting  the  mainstream  of  development  we  should  not 
remain  unaware  of  the  counterforces  which  occasionally  run  strongly  in 
the  opposite  direction,  nor  ignore  the  fact  that  the  mainstream  may 
itself  flow  in  sluggish  meanders  back  upon  itself  and  thus  reverse  some 
of  the  progress  formerly  made.  In  tracing  the  advance  from  primitive 
cowries  to  early  coinage  we  must  therefore  necessarily  be  diverted  into  a 
study  of  early  banking,  a  sophisticated  and  promising  development 
which  was  first  helped  and  then  hindered  by  the  rise  of  coinage  systems. 

Since,  according  to  Toynbee's  Study  of  History,  over  650  separate 
primitive  societies  —  most  of  which  were  still  in  existence  in  the 
twentieth  century  -  have  been  categorized  by  social  anthropologists, 
and  since  most  of  these  have  used  one  or  more  forms  of  primitive 
money,  it  follows  that  the  subject  of  primitive  money  is  of  vast 
proportions  (Toynbee  1960,  chapter  3).  Moreover  despite  the  debt  that 
present  students  owe  to  scholars  like  Einzig,  he  believed  the  subject  to 
be  still  'largely  a  terra  incognita\  and  emphasized  that  practically  every 
chapter  of  the  ethnological  and  historical  sections  of  his  book  could 
and  should  be  expanded  into  a  full-size  volume  (1966,  518). 
Unfortunately,  despite  the  appeal  and  importance  of  this  fascinating 
subject,  only  a  handful  of  primitive  moneys  can  be  touched  on  in  this 
study,  and  these  few  are  chosen  in  order  to  illustrate  the  timeless 
relevance  of  the  subject.  However,  the  total  populations  using  primitive 
money  throughout  time  have  been  very  small  compared  with  the  many 
millions  in  the  vast  populations  of  civilized,  coin-using  communities. 
While  the  allocation  of  space  in  studies  of  the  historical  development  of 
money  must  inevitably  be  somewhat  arbitrary,  the  present  writer  would 
strongly  commend  Einzig's  view  that  monetary  economists  should  take 
much  more  interest  in  examining  primitive  money  to  compensate  for 
their  previous  neglect,  and  that  our  understanding  of  modern  money 
would  be  significantly  improved  were  this  wise  advice  followed. 



The  ubiquitous  cowrie 

Of  the  many  hundreds  of  objects  that  have  been  used  as  primitive 
moneys  we  begin  with  the  cowrie  because  of  all  forms  of  money, 
including  even  the  precious  metals,  the  cowrie  was  current  over  a  far 
greater  space  and  for  a  far  greater  length  of  time  than  any  other.  The 
cowrie  is  the  ovoid  shell  of  a  mollusc  widely  spread  over  the  shallower 
regions  of  the  Indian  and  Pacific  Oceans.  It  comes  in  various  types, 
colours  and  sizes,  from  about  the  size  of  the  end  joint  of  the  little  finger 
up  to  about  the  size  of  a  fist.  The  most  prolific  single  source  was  the 
Maldive  Islands  whence  for  hundreds  of  years  whole  shiploads  were 
distributed  around  the  shores  of  Oceania,  Africa,  the  Middle  and  Far 
East,  their  values  rising  as  they  became  scarcer  farther  from  their  point 
of  origin.  Quite  apart  from  their  religious  and  obvious  ornamental 
qualities,  the  cowries  are  durable,  easily  cleaned  and  counted,  and  defy 
imitation  or  counterfeiting.  For  many  people  over  large  parts  of  the 
world,  at  one  time  or  other  they  have  appeared  as  an  ideal  form  of 
money.  Modern  moneys  found  the  cowrie  a  formidable  rival,  especially 
for  items  of  small  value.  An  interesting  example  of  their  modern  use 
was  described  to  the  writer  by  one  of  his  Nigerian  students,  who  as  a 
small  boy  regularly  collected  the  smaller  cowries  which  tended  to  be 
lost  during  the  hustle  and  bustle  of  the  open  Ibo  fair  days.  If  he 
managed  to  collect  between  six  and  eight  of  these,  he  could  purchase 
something  useful  to  eat  or  play  with.  This  personal  illustration  is  also  a 
powerful  reminder  of  the  speed  of  change  in  financial  matters  in 
developing  countries,  for  the  student  concerned,  Dr  G.  O.  Nwankwo, 
later  became  the  first  professor  of  banking  and  finance  at  the  University 
of  Lagos  and  an  executive  director  of  the  Central  Bank  of  Nigeria  and 
chairman  of  one  of  the  country's  largest  commercial  banks,  in  which 
capacities  he  has  represented  his  country  abroad  at  OPEC  and  similar 
conferences  -  from  cowries  to  petro-currencies  in  the  course  of  a  single 

Across  the  other  side  of  Central  Africa,  when  cowries  were  first 
introduced  into  Uganda  towards  the  end  of  the  eighteenth  century,  two 
cowries  in  the  most  remote  regions  were  known  to  have  been  sufficient 
to  purchase  a  woman;  by  1860  it  required  one  thousand  cowries  for 
such  a  purchase.  As  trade  grew  and  cowries  became  more  plentiful  they 
naturally  depreciated  further,  but  were  still  officially  accepted  for 
payment  of  taxes  until  the  beginning  of  the  twentieth  century.  It  was 
only  with  the  penetration  of  the  country  by  the  Uganda  Railway  that 

1  See  also  M.  Johnson,  'The  Cowrie  currencies  of  West  Africa',  in  D.  O.  Flyn,  Metals 
and  Monies  in  an  Emerging  Global  Economy  (London,  1977) . 



coins  gradually  took  over  from  cowries,  and  only  then  for  medium-  and 
large-sized  transactions.  By  the  1920s  literally  thousands  of  tons  of 
cowries  had  been  brought  into  Africa,  not  only  from  the  Maldives  but 
from  other  areas  as  they  became  progressively  even  more  devalued 
elsewhere,  and  in  so  doing  accelerated  the  depreciation  of  the  cowrie  in 
the  internal  regions  of  Africa  also.  However,  in  East  as  in  West  Africa  it 
took  until  the  middle  of  the  twentieth  century  before  the  cowries 
virtually  disappeared  from  circulation  for  the  smallest  purchases, 
especially  in  the  remotest  districts.  Their  attractiveness  plus  their 
immense  circulation  and  prolonged  popularity  have  caused  them  not 
only  to  coexist  with  modern  types  of  moneys,  but  from  time  to  time  the 
cowrie  has  pushed  debased  coinage  from  official  acceptance  in  a 
strange  reversal  of  Gresham's  Law.  Many  such  examples  have  been 
recorded  in  the  long  history  of  Chinese  currency,  for  in  this  as  in  many 
other  aspects  of  civilization  the  Chinese  offer  the  longest  sequence  of 
authentically  recorded  development.  So  important  a  role  did  the  cowrie 
play  as  money  in  ancient  China  that  its  pictograph  was  adopted  in  their 
written  language  for  'money'  (See  Cribb,  in  M.  J.  Price  1980,  296). 

Fijian  whales '  teeth  and  Yap  stones 

In  contrast  to  the  vast  range  of  the  cowrie  two  much  more 
geographically  limited  types  of  money  are  the  sperm  whale's  tooth  or 
'tambua'  of  the  Fijian  group  of  islands,  and  the  peculiar  stone  currency 
of  the  island  of  Yap.  The  ceremonial  origins  of  the  former  are 
demonstrated  by  its  continued  use  as  part  of  the  ritual  of  welcome  to 
visiting  royalty,  as  on  the  occasion  of  the  visit  of  Queen  Elizabeth  and 
the  Duke  of  Edinburgh  in  1982.  Official  receptions  are  still  unthinkable 
without  such  a  formal  presentation  of  a  whale's  tooth,  representing  as  it 
does,  deep-rooted  Fijian  cultural  traditions.  As  well  as  their  uses  in 
official  ceremonials,  whales'  teeth  were  also  used  as  bride-money,  with 
a  symbolic  meaning  similar  to  that  of  our  engagement  ring.  Much 
prestige  was  derived  from  the  ownership  of  whales'  teeth,  which  were 
constantly  oiled  and  polished  and,  in  earlier  days,  considered  to  be  far 
preferable  even  to  gold.  Thus  when  a  chest  of  gold  coins  was  captured 
aboard  a  trading  brig  off  one  of  the  Fijian  islands  in  the  mid-nineteenth 
century  the  finders  put  them  to  a  novel  use.  They  literally  threw  them 
away  playing  'ducks  and  drakes',  for  which  purpose  one  supposes  that 
they  were  absolutely  ideal,  although  few  westerners,  however  rich, 
could  vouch  personally  for  this  novel  function  of  modern  money,  or 
imagine  a  more  happily  disdainful  treatment  of  these  westernized 
'barbaric  relics'.  One  of  the  young  Fijians  among  the  party  that  had 



played  with  the  plundered  gold  coins  became  in  later  life  a  government 
official,  shortly  after  Fiji  became  a  British  Crown  Colony  in  1874,  and 
was  still  reluctant  to  accept  payment  in  sterling  silver  or  even  gold 
sovereigns.  He  requested  to  be  paid  instead  in  the  traditional  whales' 
teeth  since  with  these  he  could  demonstrate  his  prestige  and  authority 
much  more  convincingly  than  with  mere  modern  money,  which, 
although  then  of  full  intrinsic  value,  yet  lacked  the  sacred  attributes  so 
conspicuously  associated  with  the  'tambua'.  The  customs  associated 
with  tambua  were  first  described  in  detail  in  Captain  James  Cook's 
Journal  of  his  voyages  through  the  Fijian  and  Tongan  islands  in  1774. 
To  the  Pacific  islanders  the  term  possesses  a  positive  significance 
suggesting  a  sacred  sense  of  proper  or  fit  usage,  as  well  as  the  negative 
form  to  which  we  have  become  accustomed  to  limit  the  term  'taboo'. 
Thus  although  the  monetary  functions  performed  by  the  tambua  might 
be  rather  weak  at  one  end  of  the  spectrum,  they  compensated  by 
vigorously  performing  a  number  of  ceremonial  and  religious  functions 
at  the  other  end  of  the  wide  spectrum  of  monetary  custom  and  usage. 

The  peculiar  stone  currency  of  Yap,  a  cluster  of  ten  small  islands  in 
the  Caroline  group  of  the  central  Pacific,  was  still  being  used  as  money 
as  recently  as  the  mid-1960s.  The  stones  known  as  'fei'  were  quarried 
from  Palau,  some  260  miles  away,  or  from  the  even  more  distant  Guam, 
and  were  shaped  into  discs  varying  from  saucer-sized  to  veritable 
millstones,  the  larger  specimens  having  holes  in  the  centre  through 
which  poles  could  be  pushed  to  help  transport  them.  Despite  centuries 
of  at  first  sporadic  and  later  more  permanent  trade  contracts  with  the 
Portuguese,  Spanish,  German,  British,  Japanese  and  Americans,  the 
stone  currency  retained  and  even  increased  its  value,  particularly  as  a 
store  of  wealth.  It  seems  highly  appropriate  that  James  Callaghan,  who 
a  few  decades  later  was  destined  to  become  Chancellor  of  the 
Exchequer  and  Prime  Minister,  was  informed  that  these  stones  were 
still  internally  important  when  he  visited  the  Yap  islands  in  1945  when 
serving  in  the  Royal  Navy;  though  the  American  dollar  was  already 
current  for  most  purchases  involving  external  trade.  When  Mr 
Callaghan  became  Chancellor  of  the  Exchequer  from  1964  to  1967,  he 
was  automatically  also  Master  of  the  Mint  and  therefore  ultimately 
responsible  for  the  new  coins  issued  by  the  Mint  to  a  number  of  Pacific 
Islands,  where  primitive  currencies  had  still  been  in  use  thirty  years 
earlier.  The  completed  triumph  of  coinage  over  indigenous  primitive 
moneys  in  the  islands  of  the  Pacific  and  Indian  Oceans  may  be 
illustrated  by  noting  that  the  Royal  Mint  at  Llantrisant  produced  in  the 
financial  year  1981/2  coins  for  fifty-seven  countries  overseas,  including 
the  Maldive  Islands  -  the  home  of  the  cowrie  -  Fiji,  Tonga,  Tuvalu, 



Kiribati,  Papua  and  the  Seychelles;  though  not  Yap,  whose  dollars  were 
minted  in  USA  (Royal  Mint,  Annual  Report  1982,  11).  The  Royal  Mint 
produced  coins  or  blanks  for  61  countries  in  2000,  for  far  more 
countries  than  any  other  mint  (Report  for  2000-1). 

The  largest  of  the  stone  discs  now  in  Yap  include  two  fully  20  ft  in 
diameter,  which  remained  in  the  mid-1950s  at  the  bottom  of  Tomil 
harbour  where  they  had  accidentally  sunk.  They  had  been  quarried 
under  the  direction  of  a  certain  Captain  O'Keefe,  an  American-Irish  sea 
captain  who,  shortly  after  becoming  shipwrecked  in  Yap  in  December 
1871,  set  himself  up  as  the  largest  trader  in  that  part  of  the  Pacific  and 
'ruled'  as  'His  Majesty  O'Keefe'  until  his  death  in  the  great  typhoon  of 
1901.  Also  used  as  subsidiary  currency  to  'fei'  were  shell  necklaces, 
individual  pearl  shells,  mats  and  ginger.  But  it  was  the  stones  which 
were  'the  be-all  and  end-all  of  the  Yap  islander.  They  are  not  only 
money,  they  are  badges  of  rank  and  prestige,  and  they  also  have 
religious  and  ceremonial  significance'  (Klingman  and  Green  1952,  45). 
Though  of  limited  use  as  currency  they  were  nevertheless  without 
doubt  by  far  the  most  acceptable  form  of  money  to  the  Yap  islanders.  In 
contrast  to  the  Fijians  who  have  had  to  use  legal  measures  for  strictly 
limiting  the  export  of  their  precious  stock  of  whales'  teeth,  the  Yapee 
administration  has  relied  mainly  on  the  penalties  of  very  high  prices  to 
limit  those  foreign  purchasers,  such  as  curators  of  museums,  who  have 
in  recent  years  been  seeking  to  acquire  specimens  of  one  of  the  world's 
most  peculiar  forms  of  primitive  money.  One  of  the  largest  of  such 
stones  stands  proudly  but  somewhat  eccentrically  in  the  courtyard  of 
the  Bank  of  Canada  in  Ottawa.  The  tambua  and  the  fei  have  both  been 
criticized  as  not  quite  deserving  to  be  called  money  because  of  certain 
limitations  in  their  usage;  but  such  criticisms  ignore  the  compensating 
functions  beyond  the  materialistic  range  of  modern  money. 

Wampum:  the  favourite  American-Indian  money 

One  of  the  long-lasting  difficulties  of  the  early  colonists  of  North 
America  was  how  to  establish  a  generally  acceptable  monetary  system. 
The  chronic  shortage  of  coin  caused  them  to  jump  from  one  expedient 
to  another.  Thus  in  1715  the  authorities  in  North  Carolina  declared 
that  as  many  as  seventeen  commodities  including  maize  and  wheat  were 
legal  tender.  Strangely  enough,  there  already  appeared  to  be  a  much 
commoner  and  more  generally  acceptable  currency  when  it  came  to 
dealing  directly  with  the  indigenous  communities,  namely,  strings  of 
(mainly)  white  beads.  In  course  of  time  these  beads  were  also  generally 
accepted  among  the  colonists  themselves.  'Peag'  is  the  Indian  word  for  a 



string  of  beads  and  'wampum'  meant  'white',  the  most  common  colour 
of  their  money,  hence  the  full  title  of  their  famous  currency 
'wampumpeag'  is  usually  abbreviated  to  'wampum'.  The  earliest 
account  of  this  widespread  Indian  currency  was  given  by  Jacques 
Cartier  in  1535,  who  noted  an  unusual  additional  function,  its 
usefulness  in  stopping  nose-bleeding,  a  curative  property  which  his 
exploratory  party  tested  and  confirmed.  This  is  a  quaint  reversal  of  the 
better-known  nasal  connotations  of  money,  namely  'to  pay  through  the 
nose',  which  telling  phrase  stems  from  the  disconcerting  habit  of  the 
Danes  in  Ireland,  who  in  the  ninth  century  slit  the  noses  of  those  unable 
or  unwilling  to  pay  the  Danish  poll  tax.  One  of  the  most  detailed  of  the 
early  accounts  of  the  development  of  wampum  as  currency  was  that 
given  by  Roger  Williams,  a  Welsh  missionary  who  after  graduating 
from  Cambridge  in  1627  emigrated  to  Boston  in  1631  and  made  a 
comprehensive  study  of  the  languages  and  customs  of  a  number  of  the 
Indian  tribes  of  north-eastern  America. 

Wampum  was  made  out  of  the  shells  of  the  clam  (Venus  Mercenaria) 
and  other  similar  bivalves  which  were  most  plentiful  in  the  estuarine 
rivers  of  the  north-east  of  America  and  Canada.  Naturally  wampum 
was  most  commonly  used  in  what  are  now  the  coastal  states  from  New 
Brunswick  and  Nova  Scotia  in  the  north  to  Florida  and  Louisiana  in  the 
south;  but  wampum  spread  inland  also  and  was  used  by  certain  tribes 
right  across  the  continent.  The  powerful  Iroquois  amassed  large 
quantities  by  way  of  tribute,  though  they  lived  far  from  the  original 
source  of  wampum.  The  shells  are  mostly  white  but  with  a  smaller  deep 
purple  rim.  The  scarcer  'black'  or  blue-black  wampum  was  usually 
traded  at  double  the  price  of  the  white.  The  average  individual  piece  of 
wampum  was  thus  a  cylindrical  bead  about  half  an  inch  or  so  long  and 
between  an  eighth  and  a  quarter  inch  in  diameter,  with  a  hole  drilled 
lengthwise  for  stringing;  but  other  shapes  and  sizes  were  not 
uncommon.  Even  the  genuine  highest-quality  wampum  became 
depreciated  over  time  in  quality  as  well  as  through  increased  quantity. 
For  normal  currency  purposes  the  wampum  strings  were  either  about 
18  in.  or  6ft  long  and  were  therefore  usually  reckoned  in  cubits  and 
fathoms,  but  on  occasions  singly  or  in  feet;  they  were  eminently 
divisible.  Some  tribes,  such  as  the  Narragansetts,  specialized  in 
manufacturing  wampum,  but  their  original  stone-age  craftsmanship 
was  swamped  when  the  spread  of  steel  drills  enabled  unskilled  workers, 
including  the  colonists  themselves,  to  increase  the  supply  a 
hundredfold.  Thus  that  tribe  lost  its  partial  monopoly.  Even  before  this 
massive  devaluation  brought  about  mostly  through  greatly  increased 
quantities  but  partly  also  through  poorer  quality,  the  exchange  value  of 



wampum  fell  with  the  decline  in  the  value  of  beaverskins.  Roger 
Williams  found  it  difficult  to  explain  this  relationship  to  Indian  traders 
who  saw  the  value  of  their  wampum  halved  in  a  few  years,  and  saw  this 
as  deliberate  cheating  by  the  white  traders.  Of  course  it  is  always  a 
temptation  to  personalize  the  laws  of  supply  and  demand  behind  which 
the  authorities,  however  constituted,  are  always  prone  to  hide  their  own 

As  an  indication  of  the  essential  role  wampum  played  in  early 
colonial  days  even  among  the  white  settlers,  it  was  made  legal  tender  in 
a  number  of  the  original  thirteen  American  colonies.  In  1637 
Massachusetts  declared  white  wampum  legal  tender  at  six  beads  a 
penny  and  black  at  three  a  penny,  but  only  for  sums  up  to  one  shilling. 
Apparently  this  experiment  succeeded,  for  the  legal  tender  limit  was 
raised  to  £2  in  1643,  a  substantial  amount  for  those  days  and  far 
exceeding  the  real  value  of  our  coinage  limits  today.  Although  wampum 
ceased  to  be  legal  tender  in  the  New  England  states  in  1661,  it  still 
remained  a  popular  currency  in  parts  of  North  America  for  nearly  200 
years  subsequently,  although  the  blanket  and  the  beaverskin  were  strong 
competitors  among  the  Indians  of  Canada.  In  1647  Peter  Stuyvesant, 
the  director  general  of  New  Netherland,  raised  a  loan  via  a  merchant  in 
Albany  of  between  5,000  and  6,000  guilders  in  wampum  in  order  to  pay 
the  labourers'  wages  for  the  fort  he  was  building  in  New  York  (Myers 
1970,  3).  Around  1760  demand  in  New  England  still  remained  strong 
enough  to  justify  starting  a  wampum  factory,  opened  in  New  Jersey  by 
J.  W.  Campbell,  where  an  expert  worker  could  produce  up  to  20  ft  of 
wampum  a  day.  This  factory  remained  in  production  for  a  hundred 
years.  Thereafter,  although  retaining  its  ornamental  attributes, 
particularly  for  belts,  bracelets  and  necklaces,  wampum  generally  faded 
away  for  currency  purposes,  and  modern  coinage  almost  completely 
replaced  it  even  for  small  change  by  the  last  quarter  of  the  nineteenth 
century.  However,  the  belts  were  still  used  in  competitive  exchanges  well 
into  the  present  century,  and  even  now  help  to  sustain  the  growing 
tourist  trade. 

Wampum's  monetary  death  therefore  resembled  its  birth,  for  its  use 
as  money  undoubtedly  came  about  as  an  extension  of  its  desirability  for 
ornamentation.  Indeed  there  is  a  considerable  degree  of  doubt  about 
the  extent  to  which  wampum  was  actually  used  as  currency  before  the 
arrival  of  the  colonists,  but  again,  its  possible  weakness  in  this  regard 
was  compensated  by  taking  into  account  its  psychic  functions. 
However,  both  before  and  after  it  acquired  its  additional  uses  as  a 
medium  of  exchange  and  a  means  of  payment  it  functioned  strongly  as 
a  store  of  value.  The  step  from  the  European  coinages  of  their 



homelands  to  the  use  of  primitive  beads  was  thus  more  of  a  sidestep 
than  a  sign  of  backwardness.  In  the  meantime,  while  Americans  and 
Canadians  were  sorting  out  their  own  monetary  systems,  they  found 
the  humble  strings  of  beads  a  most  desirable  and  durable  bridge  to 
more  modern  forms  of  money,  performing  quite  well  for  a  considerable 
period  all  the  functions  of  a  modern  money,  from  accounting  and  acting 
as  a  means  of  payment  -  or  'shelling  out'  -  to  providing  usefully 
compact  and  durable  stores  of  value.  Although  the  American  example 
of  a  more  advanced  economy  incorporating  and  adapting  primitive 
money  is  the  best  known,  it  is  far  from  being  an  isolated  case.  The  same 
process  occurred  in  many  other  instances,  including  the  ancient 
civilizations  of  Egypt  and  China,  and  even  showed  itself  to  such  an 
absurd  degree  in  nineteenth-century  England  that  Charles  Dickens  felt 
constrained  to  pour  his  powerful  contempt  on  British  official  insistence 
on  using  primitive  wooden  forms  of  money  right  into  the  modern  era.2 

Cattle:  man 's  first  working-capital  asset 

Just  as  the  cowrie  played  a  major  part  in  primitive  money  from  the  point 
of  view  especially  of  being  a  medium  of  exchange,  so  cattle  have  occupied 
a  central  role  in  the  long  evolution  of  money  as  units  of  account.  Cattle  — 
a  vague  term  variously  meaning  cows,  buffalo,  goats,  sheep  and  camels, 
and  usually  but  not  always  excluding  horses  -  historically  precede  the  use 
of  grain  as  money  for  the  simple  reason  that  the  taming  of  animals 
preceded  agriculture.  Despite  their  age-long  use  as  money,  some 
authorities  on  primitive  money  would  contend  that  cattle  cannot  be 
properly  considered  as  money  because,  being  such  a  'heavy'  or  expensive 
unit  of  account  and  standard  of  value,  they  were  not  very  suited  to 
performing  the  other  more  mobile  functions  of  being  a  good  means  of 
payment  and  medium  of  exchange,  which  apparently  demanded 
something  much  smaller  than,  say,  a  cow.  But  if  the  'pound'  sterling  was 
clearly  accepted  as  money  for  hundreds  of  years  during  which  it  had  no 
physical  existence  and  despite  being  a  'heavy'  currency,  cattle,  which  at 
least  do  have  a  very  substantial  physical  presence,  may  with  even  greater 
justifiability  be  called  money,  provided  only  that  they  are  of  course  used 
for  monetary  purposes,  as  they  indubitably  were,  with  sheep,  goats  and 
hides  being  used,  among  other  objects,  as  subsidiary  'coinage'  where 
emphasis  was  required  on  the  mobile  monetary  functions. 

As  we  have  stressed,  it  is  quite  wrong  to  consider  the  various 
functions  of  money  to  be  separated  by  unclimbable  barriers.  In 
particular  one  should  not  confuse  the  abstract  concept  of  an  ox  as  a 

2See  p.  365. 



unit  of  account  or  standard  of  value,  which  is  its  essential  but  not  its 
only  monetary  function,  with  its  admittedly  cumbersome  concrete 
physical  form.  Once  that  is  realized  (a  position  quickly  reached  by 
primitive  man  if  not  yet  by  all  economists  or  anthropologists),  the 
inclusion  of  cattle  as  money  is  easily  accepted,  in  practice  and  logic. 
Smaller  animals  or  more  convenient  physical  objects  -  so  many  sheep 
and  goats  for  a  cow  or  camel,  so  many  chickens  for  a  sheep  or  goat,  and 
so  on  —  can  easily  supplement  the  apparent  but  unreal  problem  of 
having  a  heavy  accounting  unit,  just  as  the  old  pound  was  divided  into 
20  shillings,  240  pennies  and  960  farthings.  In  any  case  it  has  been  the 
common  custom  among  primitive  communities  to  have  more  than  one 
money  medium,  each  one  necessarily  being  linked  with  the  particular 
unit  of  account.  Until  well  into  the  present  century  horses  were  the 
main  monetary  unit  of  the  Kirghiz  of  the  Russian  steppes,  and  formed 
their  main  store  of  value,  though  sheep  were  used  as  subsidiaries,  with 
lambskins  being  used  as  small  change.  To  exclude  one  of  the  world's 
longest-lasting  and  one  of  its  most  uniform  financial  accounting  units 
from  being  money  just  because  it  was  better  at  performing  some 
functions  than  others  would  be  as  unjustified  as  excluding  cowries  or 
wampum  because,  being  individually  of  small  value,  their  monetary 
functions  were  performed  less  well  for  large  as  compared  with  smaller 
amounts.  Just  as  cowries  and  wampum  could  be  aggregated  in 
bucketfuls,  basketfuls  or  stringfuls  to  overcome  the  apparent 
disadvantages  of  their  small  size,  so  over  many  millennia  it  has  been 
easy  to  think  up  and  apply  in  practice  subsidiaries  for  bovine  currencies 
without  having  to  resort  to  imaginary  slaughter  whenever  the 
equivalent  of  a  pound  of  flesh  was  required  in  exchange. 

Cattle  used  as  money  were  of  course  counted  by  head  so  that,  for 
monetary  purposes  at  least,  quantity  has  generally  though  not 
invariably  been  more  important  than  quality.  The  preference  for 
quantity  over  quality  is  well  illustrated  in  this  account  of  Negley 
Farson's  contacts  with  the  Wakamba,  a  Kenyan  pastoral  tribe,  just 
before  the  Second  World  War.  Much  more  recent  reports  indicate  that 
the  attitude  displayed  by  the  Wakamba  has  not  materially  altered.  An 
agricultural  expert  had  been  trying  to  persuade  the  tribal  chiefs  not  to 
keep  their  old  and  diseased  cattle.  In  reply  one  of  the  Wakamba 
answered:  'Listen,  here  are  two  pound  notes.  One  is  old  and  wrinkled 
and  ready  to  tear;  this  one  is  new.  But  they  are  both  worth  a  pound. 
Well,  it's  the  same  with  cows'  (Farson  1940,  264). 

The  same  attitude  to  cattle  is  shared  by  the  Masai  and,  with  regard 
to  goats,  by  the  Kikuyu  among  whom  Jomo  Kenyatta,  the  'father  of 
modern   Kenya'   was   himself   reared.    The   common  unfortunate 



ecological  result  of  this  economic  characteristic  has  been  a  marked 
tendency  towards  overgrazing  which  from  time  to  time  has  turned 
grasslands  into  desert,  and  which  explains  why  in  recent  times  the 
introduction  of  modern  money  has  been  stressed  by  state  authorities  for 
soil  conservation  as  well  as  for  other  more  obvious  economic  purposes. 
Attempts  to  change  farming  practices  to  control  erosion  appear 
doomed  to  delay  if  not  failure.  Thus  in  1938  the  economist  A.  E.  G. 
Robinson  stressed  the  need  'to  change  the  attitude  of  the  native  towards 
his  domestic  animals  that  they  become  not  tokens  of  wealth  or  a  form 
of  currency  but  a  source  of  income'.  The  Global 2000  report  projects  a 
world  increase  in  cattle  of  200  million  between  1976  and  the  end  of  this 
century  and  points  out  that  in  the  twelve  years  between  1955  and  1976 
Africa's  sheep  and  goat  population  increased  by  over  66  million  {Global 
2000 1982,  232-5).  Attention  has  already  been  drawn,  in  the  case  of  the 
Indian  tribes  of  Canada,  to  the  deleterious  results  of  replacing  the  old 
with  a  new  money  system:  here  one  may  see  the  dangerous  effects,  given 
the  increased  pressure  of  human  and  animal  populations  on  limited 
resources,  of  maintaining  one  of  the  oldest  monetary  systems  in  the 
world.  In  1983  the  new  Brandt  Commission  re-emphasized  'the  need  to 
halt  and  reverse  these  processes  of  ecological  degradation,  which  now 
assume  emergency  proportions'  and  estimated  the  cost  of  doing  so  as 
'well  over  $25  billion  by  the  end  of  the  century'  (p.  126).  In  certain 
instances,  particularly  when  cattle  were  used  for  sacrifices,  the  quality  - 
'without  spot  or  blemish'  -  was  important,  and  in  a  number  of  such 
cases  the  religious  usages  of  cattle  probably  preceded  their  adoption  for 
more  general  monetary  purposes.  But  there  need  be  no  incompatibility 
in  the  argument  as  to  the  relative  merits  of  quality  as  opposed  to 
quantity  -  good  or  bad,  the  essence  of  the  argument  is  that  they  were  in 
either  case  money.  Furthermore,  they  were  movable,  an  immense 
advantage,  forming  man's  earliest  working  capital  and  the  linguistic 
origin  not  only  of  our  'pecuniary'  from  the  Latin  'pecus'  or  cattle,  but 
also  our  terms  'capital'  and  'chattels'.  Similarly  the  Welsh  'da'  as  an 
adjective  means  'good',  and  as  a  noun,  both  'cattle'  and  'goods'. 

Although  these  examples  of  the  cultural,  ecological  and  economic 
relationships  of  the  monetary  use  of  cattle  are  taken  mostly  from  the 
modern  world,  similar  problems  of  overstocking  and  resalinization, 
even  if  on  a  much  smaller  scale,  occurred  in  the  ancient  world  also, 
particularly  in  Mesopotamia  and  along  the  North  African  coastal  area. 
The  latter,  once  in  large  part  the  granary  of  the  Roman  empire  and 
more  recently  feeder  of  the  empty  imperial  dreams  of  Mussolini,  is  now, 
despite  its  vestigial  wells  which  slaked  the  thirst  of  the  Eighth  Army, 
simply  a  northern  extension  of  the  Sahara.  The  use  of  cattle  as  visible 



and  useful  evidence  of  wealth  and  its  superiority  as  a  form  of  money  for 
many  centuries  in  various  communities  around  the  world  combine  to 
explain  why  it  has  not  always  been  very  easy  to  substitute  modern 
money  in  place  of  cattle  in  primitive  pastoral  communities.  The  other 
staple  food  used  as  money,  namely  grain,  will  be  considered  shortly  in 
the  context  of  the  monetary  development  of  ancient  Egypt.  We  turn 
first,  however,  to  the  essential  preliminary  stage  on  the  road  to  coined 
money;  the  use  of  metals  as  money. 

Pre-coinage  metallic  money 

To  primitive  man  emerging  from  the  Stone  Age,  any  metal  was  precious: 
the  distinction  between  base  and  precious  metals  became  of  significance 
only  after  his  skill  as  a  metallurgist  had  improved  and  supplies  of  various 
metals  had  increased  sufficiently  to  reflect  their  relative  abundance  or 
scarcity.  Thus  copper,  bronze,  gold,  silver  and  electrum  were  known  and 
used  before  iron,  while  aluminium,  the  most  common  metal  in  the  earth's 
crust,  became  available  for  use  only  in  the  nineteenth  century.  It  was  first 
named  by  Humphrey  Davy  in  1809,  first  isolated  by  Hans  Christian 
Oersted  in  1825,  introduced  to  the  public  as  one  of  the  special  attractions 
of  the  Paris  Exhibition  of  1855,  while  its  ranking  as  a  precious  metal  was 
confirmed  by  Napoleon  III,  who  temporarily  laid  aside  his  gold  plate  to 
eat  off  aluminium  on  state  occasions.  Within  a  relatively  short  period  of 
time  millions  of  soldiers  in  the  two  World  Wars  were  also  eating  off 
aluminium  plate  without  considering  it  in  any  way  luxurious,  while  for  a 
number  of  years  in  the  immediate  post-Second  World  War  period  certain 
European  countries  resorted  to  the  use  of  aluminium  coins.  This  was, 
however,  considered  to  be  very  much  an  emergency  and  far  inferior  to  the 
more  normal  use  of  the  heavier  metals,  of  copper,  brass,  etc.  to  which 
they  promptly  returned,  aluminium  being  considered  no  longer  fit  for 
even  the  humblest  tokens. 

The  eagerness  with  which  metals  were  accepted  by  late  Stone-Age 
man  and  their  growing  indispensability  once  he  had  become 
accustomed  to  them  together  form  the  key  explanation  as  to  their  ready 
transformation  into  use  as  money.  Indeed  the  word  for  'silver'  and 
'money'  has  remained  the  same  from  prehistoric  to  modern  times  in  a 
number  of  languages,  e.g.  French  'argent'  and  Welsh  'arian'.  The  metals 
therefore  formed  a  strong  and  wide  bridge  from  primitive  to  modern  or 
coined  money.  There  is  no  need  at  this  point  to  dwell  on  their 
ornamental  attributes,  which  obviously  helped  enormously  in  making 
and  maintaining  their  almost  universal  acceptability,  but  it  is  perhaps 
more  appropriate  to  note  here  how  often  the  metals  began  to  be  used 



symbolically  in  imitation  of  and  as  a  more  valuable  extension  of  the 
age-old  primitive  moneys.  The  Chinese  at  the  end  of  the  Stone  Age 
began  for  instance  to  manufacture  both  bronze  and  copper  'cowries'; 
and  these  dumpy  imitations,  which  must  have  represented  very  high 
values  at  least  when  they  were  first  introduced,  are  considered  by  some 
numismatists  to  be  among  the  earliest  examples  of  quasi-coinage, 
although  this  depends  on  how  strictly  one  defines  the  term. 

The  transition  from  specific  usage  as  tools  to  symbolic  and  more 
general  usage  as  media  of  exchange  and  units  of  account  may  also  be 
seen  in  a  range  of  metallic  objects  made  of  copper,  bronze  and  iron, 
such  as  axes,  spears,  knives,  swords,  hoes  and  spades.  Swords  and 
spears  were  obviously  treasured  possessions,  replicas  of  which  could 
conveniently  be  reduced  in  size  as  they  lost  their  purpose  and  became 
used  as  money.  A  number  of  writers  have  commented  on  Julius  Caesar's 
castigation  of  the  ancient  Britons  for  still  using  crudely  made  iron 
sword-blades  as  currency  when  more  civilized  Europeans  had  long  used 
coins;  but,  as  Einzig  points  out,  the  Greeks  themselves  had  earlier  been 
using  iron  spits  or  nails  as  money  at  a  time  when  they  could  hardly  have 
been  derided  by  Romans  as  being  backward  (1966,  235)  Spade,  hoe  and 
knife  money  is  best  looked  at  below  in  the  section  on  Chinese  coinage 
as  being  logically  inseparable  from  any  discussion  of  the  'invention'  of 
coinage.  Meanwhile  a  brief  examination  of  the  non-representational 
monetary  use  of  pre-coinage  metal  may  be  in  order. 

As  well  as  representational  or  symbolic  money,  metals  have  long  been 
used  more  simply  and  directly  as  money,  sometimes  just  as  unmarked 
lumps  of  various  shapes  and  sizes  but  more  often  in  the  form  of  rods, 
wire  coils  and  rings,  anklets,  bracelets  and  necklaces,  that  is  in  forms 
which  were  intended  especially  to  facilitate  their  acceptance  as  money. 
A  particularly  interesting  example  of  this  wide-ranging  group  of 
metallic  moneys  is  to  be  seen  in  the  'manilla'  currencies  of  West  Africa. 
The  manilla  is  a  metal  anklet,  bracelet  or  front  section  of  a  necklace, 
depending  on  its  size  and  curvature,  usually  of  copper  or  brass,  long 
used  in  parts  of  West  Africa,  particularly  in  Nigeria,  for  money  which 
could  be  conveniently  and  ornamentally  carried  on  the  person.  Its 
linguistic  and  actual  derivations  are  in  considerable  doubt.  Its  claimed 
linguistic  origins  range  from  being  possibly  derived  from  Spanish  or 
Portuguese  'little  hand'  (from  Latin  'manus')  to  a  most  unlikely 
combination  of  Phoenician  and  Irish.  Claims  as  to  the  actual  physical 
origins  of  the  manilla  are,  with  varying  probability,  ascribed  to  either 
ancient  Phoenician  trading  links  between  Tyre  and  Sidon  with  West 
Africa,  or  spring  from  the  attractiveness  of  the  bolts,  clamps  and  other 
such  metal  devices  salvaged  from  the  ships  of  early  Portuguese 



explorers  wrecked  on  the  Guinea  coast  in  the  fifteenth  century.  It  is  a 
recorded  fact  that  in  the  short  period  1504-7  just  one  trading  station 
alone  along  the  Guinea  coast  imported  287,813  manillas  from  Portugal. 
The  Irish  connection  stems  from  the  more  than  superficial  resemblance 
between  current  manillas  and  ancient  Celtic  torque  ornaments  found  in 
Ireland.  These  various  explanations  as  to  the  origin  of  manillas  are  not 
mutually  exclusive.  We  know  that  the  ancient  Phoenician  traders 
exported  considerable  quantities  of  open-ended  bracelets  to  their 
distant  trading  centres  including  Ireland  and  West  Africa. 

Although  attempts  had  been  made  as  early  as  1902  to  suppress  the 
manilla,  attempts  which  were  repeated  by  the  West  African  Currency 
Board  after  its  formation  in  1912,  the  United  Africa  Company  still 
found  it  necessary  to  trade  in  manillas  in  the  immediate  post-Second 
World  War  period.  Eventually,  after  a  long  struggle  they  were  officially 
withdrawn  from  circulation  in  1949,  and  a  little  later  this  recent 
triumph  of  modern  bureaucracy  over  primitive  money  was  celebrated 
by  the  issue  of  special  postage  stamps.  The  tribes  who,  like  the  Ibo, 
stubbornly  preferred  cowries  and  manillas  to  coins,  are  eloquent 
examples  of  the  persistence  of  their  need  for  psychic  satisfactions,  in 
this  case  religious  and  ornamental  gratification,  to  be  combined  with 
the  more  purely  economic  aspects  of  money,  a  combination  lost  by 
having  to  rely  exclusively  on  the  narrower  range  of  functions  performed 
by  coins.  Though  mass-produced  and  imported  like  minted  coins, 
manillas  and  similar  objects  were  nevertheless  felt  to  be  far  more 
adapted  to  the  needs  of  primitive  societies  than  were  coins.  The 
manillas  were  virtually  a  modern  metallic  money  integrated  into 
primitive  societies  to  such  a  degree  that  they  performed  the  functions 
usually  associated  exclusively  with  primitive  moneys. 

The  normal  process  of  monetary  development  was  of  course  just  the 
reverse,  being  a  series  of  occasionally  interrupted  improvements  which 
cumulatively  transform  primitive  communities  through  increasing 
recourse  to  metals  for  all  sorts  of  uses  including  money,  into  more 
advanced  economies,  diffusing  higher  standards  of  living  and  more 
sophisticated  monetary  and  trading  systems  over  wider  and  wider  areas 
and  involving  vastly  greater  populations.  Money  and  civilization 
usually  marched  onward  together,  and,  occasionally,  declined  together. 
Once  it  had  become  available,  the  increased  preference  for  metallic 
money  is  easily  appreciated,  for  as  Jevons  has  convincingly 
demonstrated,  it  possessed,  in  the  pre-electronic  era,  to  a  higher  degree 
than  any  other  material,  the  essential  qualities  of  a  good  money, 
namely,  cognizability,  utility,  portability,  divisibility,  indestructibility, 
stability  of  value,  and  homogeneity  (Jevons  1910,  31). 



Although  Jevons  arranged  these  in  a  different  order  of  priority,  we 
have  already  seen  that  what  may  be  a  correctly  interpreted  order  for  one 
society  may  be  quite  misleading  in  another.  Certainly  with  regard  to  the 
development  of  coinage,  cognizability  would  be  placed  among  the  first 
ranks  rather  than  in  the  last  position  to  which  Jevons  relegated  it.  The 
pace  of  financial  bargaining  was  enormously  speeded  up  when 
recognized  pieces  of  metal  could  be  simply  counted  than  when  metals 
had  to  be  weighed,  as  was  the  case  in  all  pre-coinage  days  in  all 
primitive  societies  and  even  for  long  periods  in  the  earlier  stages  of 
civilized  communities.  Admittedly  the  ancient  world  of  the  Near  East 
managed  to  carry  out  an  extensive  system  of  trading  based  very  largely 
on  metallic  currencies  exchanged  by  weight  without  any  knowledge  of 
coining.  But  that  extensive  degree  of  trading  was  possible  only  because 
they  had  already  'invented'  an  effective  system  of  banking. 

Money  and  banking  in  Mesopotamia 

Man  may  not  have  originated  in  the  traditional  site  of  the  Garden  of 
Eden,  to  the  east  of  the  Holy  Land,  but  more  possibly  in  the  Rift  Valley 
of  Africa.  Nevertheless,  it  may  well  be  that  myth  and  science  can  more 
easily  be  reconciled  in  recognizing  the  probability  that  the  world's  first 
civilization  grew  up  in  the  warm,  fertile,  alluvial  plains  between  the 
Euphrates  and  the  Tigris  some  seven  thousand  years  ago  and  spread 
gradually  to  neighbouring  regions.  It  is  equally  probable  that  this 
traditional  Eden  saw  the  first  use  of  money,  while  over  three  thousand 
years  ago  the  world's  first  bankers  were  living  in  Babylon.  Toynbee 
isolates  some  twenty-one  different  'civilizations'  but,  since  fifteen  of 
these  were  directly  or  indirectly  derived  from  earlier  examples,  he 
narrows  the  separately  developed  into  six:  the  Sumerian,  Egyptian, 
Minoan,  Chinese,  Mayan  and  Andean.  Of  these  only  the  Incas  of  the 
Andes  had  managed  to  achieve  a  high  degree  of  civilization  without  the 
use  of  money,  though  paradoxically  they  possessed  a  superabundance 
of  what  has  generally  been  regarded  as  by  far  the  best  material  for 
money  -  gold  and  silver. 

As  was  explained  in  chapter  1,  the  greater  the  stratification  of  society 
and  the  more  efficiently  meticulous  the  planning  system,  the  less 
necessary  it  is  for  people  to  use  money.  This  may  account  for  the  fact 
that  whereas  the  Spanish  conquistadores  found  that  the  more  liberally 
governed  Mexicans  regularly  used  gold  dust  (kept  in  transparent  quills) 
and  cocoa-beans  (kept  for  large  payments  in  bags  of  24,000)  as  money, 
in  contrast  the  more  rigidly  hierarchical  Incas  had  no  such  money:  an 
exception  proved  by  an  iron  rule.  The  origin  of  money  in  China 



occurred  quite  independently  of  that  elsewhere,  but  the  relatively  closer 
proximity  of  the  Sumerian,  Egyptian  and  Minoan  civilizations  may  still 
raise  some  doubt  as  to  the  degree  to  which  they  were  ignorant  of  each 
other's  monetary  affairs,  particularly  since  strong  trading  links  are 
known  to  have  been  established  in  quite  early  times. 

The  upsurge  of  interest  in  archaeology  in  recent  years,  combined 
with  the  application  of  scientific  methods  such  as  dendro-chronology 
and  radiocarbon  testing  generally  increased  the  confidence  with  which 
historians  of  ancient  times  can  establish  the  age  of  some  of  the  past  data 
by  which  they  trace  the  rise  of  civilization.  Even  with  all  these  modern 
aids  however,  there  remain  legitimate  doubts  concerning  how  to 
interpret  even  the  most  cast-iron  of  facts.  As  Joan  Oates  disarmingly 
concedes,  'Any  study  of  Babylonian  civilisation  is,  and  will  remain,  an 
amalgam  of  near-truths,  misunderstandings  and  ignorance,  but  this  can 
be  said  of  more  periods  of  history  than  most  historians  would  admit' 
(1979,  197).  However,  so  far  as  monetary  studies  are  concerned  we  are 
at  least  favoured  by  the  exceptional  durability  of  the  precious  metals 
and,  in  the  case  of  the  Middle  East,  by  the  almost  equal  durability  of 
the  innumerable  clay  writing  tablets  which  form  a  vast  reservoir  of 
usable  information.  Yet  behaviour  leaves  no  fossils,  and  even  where 
detailed  written  texts  exist,  their  discovery  by  its  very  nature  is  apt  to  be 
random.  Of  course  there  are  exceptions,  for  when  records  are  written  in 
tablets  of  stone,  whether  these  are  the  biblical  ten  commandments  or 
the  more  numerous  laws  of  Hammurabi,  we  may  assume,  from  the  form 
and  material  in  which  they  were  written,  that  they  were  considered  to 
be  of  great  importance  in  contemporary  life,  and  our  historical 
treatment  should  take  notice  of  such  facts. 

'Money,'  said  Keynes  in  his  Treatise, 

like  certain  other  essential  elements  in  civilisation,  is  a  far  more  ancient 
institution  than  we  were  taught  to  believe  some  few  years  ago.  Its  origins 
are  lost  in  the  mists  when  the  ice  was  melting,  and  may  well  stretch  back 
into  the  paradisaic  intervals  in  human  history  of  the  inter-glacial  periods, 
when  the  weather  was  delightful  and  the  mind  free  to  be  fertile  of  new  ideas 
-  in  the  Islands  of  the  Hesperides  or  Atlantis  or  some  Eden  of  Central  Asia. 
(1930, 1,  13) 

It  was  from  this  lost  Eden  that  money  and  banking,  as  well  as  writing 
and  our  duodecimal  methods  of  counting  time,  space  -  and  money  - 
originated.  If  one  were  to  speculate  as  to  how  writing  first  appeared  one 
might  dreamingly  imagine  that  romantic  necessity  or  poetic  inspiration 
were  the  causes  rather  than  the  prosaic  need  to  record  debts  and  credits, 
which  in  historical  reality  turns  out  to  have  been  the  source. 



Thus  handwriting  from  its  very  beginnings  was  closely  associated 
with,  and  improved  in  parallel  with,  the  keeping  of  accounts.  The 
earliest  Sumerian  numerical  accounts  consisted  of  a  stroke  for  units  and 
a  simple  circular  depression  for  tens.  The  economic  origins  of  writing 
are  unequivocally  confirmed  by  expert  archaeologists.  Thus  Dr  Oates 
asserts  that  'Writing  was  invented  in  Mesopotamia  as  a  method  of 
book-keeping.  The  earliest  known  texts  are  lists  of  livestock  and 
agricultural  equipment.  These  come  from  the  city  of  Uruk  c.3,100  bc' 
Further  to  emphasize  its  mundane,  economic  character  the  same 
authority  adds  that  'the  invention  of  writing  represented  at  first  merely 
a  technical  advance  in  economic  administration'  (Oates  1979,  15,  25). 
Neighbouring  tribes  such  as  the  Akkadians  borrowed  the  Sumerian 
system  of  handwriting  and  gradually  this  picture-writing  or 
pictographic  script  developed  into  various  cuneiform  standards  that 
lasted  for  three  thousand  years,  and  especially  for  certain  economic 
documents,  well  into  the  first  century  AD.  Numerous  records  exist  in 
this  script  describing  the  activities  of  a  number  of  banking  houses  and 
of  prosperous  merchants  in  Babylon  and  Nippur  after  the  region 
became  part  of  the  Persian  empire  (Oates  1979,  136). 

The  royal  palaces  and  especially  the  temples  were  the  centre  of 
Babylonian  economic  and  administrative  as  well  as  of  political  and 
religious  life  (these  elements  were  not  as  compartmentalized  as  we  have 
made  them).  Security  for  deposits  was  more  easily  assured  in  the 
temples  and  royal  palaces  than  in  private  houses,  and  so  it  was  natural 
enough  that  the  first  banking  operations  were  carried  out  by  royal  and 
temple  officials.  Grain  was  the  main  form  of  deposit  at  first,  but  in  the 
process  of  time  other  deposits  were  commonly  taken:  other  crops,  fruit, 
cattle  and  agricultural  implements,  leading  eventually  and  most 
importantly  to  deposits  of  the  precious  metals.  Receipts  testifying  to 
these  deposits  gradually  led  to  transfers  to  the  order  not  only  of  the 
depositors  but  also  to  a  third  party.  'This  was  the  way  in  which  loan 
business  originated  and  reached  a  high  stage  of  development  in 
Babylonian  civilisation'  (Orsingher  1964,  1).  In  the  course  of  time 
private  houses  also  began  to  carry  on  such  deposit  business  and 
probably  grew  to  be  of  greater  importance  internally  than  was  the  case 
in  contemporary  Egypt.  The  banking  operations  of  the  temple  and 
palace-based  banks  preceded  coinage  by  well  over  a  thousand  years, 
and  so  did  private  banking  houses  by  some  hundreds  of  years:  notably 
the  reverse  of  later  European  monetary  development. 

Literally  hundreds  of  thousands  of  cuneiform  blocks  have  been 
unearthed  by  archaeologists  in  the  various  city  sites  along  the  Tigris 
and  Euphrates,  many  of  which  were  deposit  receipts  and  monetary 



contracts,  confirming  the  existence  of  simple  banking  operations  as 
everyday  affairs,  common  and  widespread  throughout  Babylonia.  The 
Code  of  Hammurabi,  law-giver  of  Babylon,  who  ruled  from  about  1792 
to  1750  BC,3  gives  us  categorical  evidence,  available  for  our  inspection  in 
the  shape  of  inscriptions  on  a  block  of  solid  diorite  standing  over  7  ft 
high  now  in  the  Paris  Louvre,  showing  that  by  this  period  'Bank 
operations  by  temples  and  great  landowners  had  become  so  numerous 
and  so  important'  that  it  was  thought  'necessary  to  lay  down  standard 
rules  of  procedure'  (Orsingher,  1964,  viii). 

The  oldest  Babylonian  private  banking  firms  still  remain  anonym- 
ous, but  by  the  seventh  century  BC  the  'Grandsons  of  Egibi'  emerged 
into  recorded  fame.  Their  headquarters  were  in  the  city  of  Babylon, 
whence  they  carried  out  a  very  wide  variety  of  business  activities 
combined  with  their  banking.  They  acted  as  pawnbrokers  -  and  in  case 
anyone  objects  that  this  is  hardly  banking,  perhaps  one  should  be 
reminded  that  the  original  charter  of  the  Bank  of  England  empowered  it 
to  act  as  a  pawnbroker.  The  House  of  Egibi  also  gave  loans  against 
securities,  and  accepted  a  wide  range  of  deposits.  'Customers  could 
have  current  accounts  with  them  and  could  withdraw  the  whole  or 
parts  of  certain  deposits  with  cheques  .  .  .  The  ships  of  the  firm  were 
used  in  trade  expeditions  exactly  like  those  of  the  royal  and  temple 
households.  Speculation  and  investment  for  secure  income  were 
combined  in  the  business  pattern  of  this  bank'  (Heichelheim,  1958,  I, 
72).  After  having  flourished  for  some  hundreds  of  years  this  bank  seems 
to  fade  from  the  scene  some  time  during  the  fifth  century  BC. 

A  similar  but  younger  banking  firm  of  which  we  have  records  is  that 
of  the  Sons  of  Maraschu,  which  operated  from  the  town  of  Nippur.  As 
well  as  carrying  on  the  same  kind  of  banking  functions  as  the 
Grandsons  of  Egibi,  they  specialized  in  what  we  would  call  renting  and 
leasing  arrangements.  They  administered,  as  agents  or  tax  farmers,  the 
royal  and  larger  private  estates;  they  rented  out  fish-ponds,  financed 
and  constructed  irrigation  canals  and  charged  fees  to  farmers  within 
their  water  networks;  and  they  even  had  a  partial  monopoly  on  the  sale 
and  distribution  of  beer.  They  also  acted  as  jewellers  and  goldsmiths. 
Thus  it  is  not  surprising  that  in  Babylon  the  use  of  precious  metals,  and 
later  coinage,  became  much  more  generally  accepted  than  was  the  case 
in  Egypt  and,  because  they  had  a  less  rigid  and  more  'mixed'  economy, 
the  peculiar  kind  of  state  giro  system  based  on  grain  did  not  reach  so 

'The  dates  suggested  by  Orsingher,  1728-1686,  are  probably  too  late;  but  as  Dr  Oates 
warns:  'Chronological  systems  currently  in  use  give  a  range  of  200  years  for  the 
accession  of  Hammurabi'  (see  Oates  1979,  24). 



high  a  pitch  of  development  in  Babylon  as  it  did  in  the  Egypt  of  the 
Ptolemies;  to  which  account  we  now  turn. 

Girobanking  in  early  Egypt 

Nowhere  has  grain  achieved  such  a  high  degree  of  monetary  use  as  in 
ancient  Egypt.  Although  copper,  gold  and  silver  were  long  used  as  units 
of  account,  there  is  some  doubt  as  to  the  extent  they  were  also  used  as 
media  of  exchange,  particularly  for  the  majority  of  the  population, 
when  the  allocation  or  rationing  of  resources  was  based  on  a  strict  form 
of  feudalism  which  restricted  the  need  to  use  money.  Despite  the 
existence  of  metallic  money,  it  was  grain  which  formed  the  most 
extensively  used  monetary  medium,  particularly  for  accounting 
purposes,  even  after  the  Greeks  had  introduced  coinage.  The  origin  of 
transfer  payments  to  order  developed  naturally  by  stages,  arising  from 
the  centralization  of  grain  harvest  in  state  warehouses  in  both  Babylon 
and  Egypt.  Written  orders  for  the  withdrawal  of  separate  lots  of  grain 
by  owners  whose  crops  had  been  deposited  there  for  safety  and 
convenience,  or  which  had  been  compulsorily  deposited  to  the  credit  of 
the  king,  soon  became  used  as  a  more  general  method  of  payment  for 
debts  to  other  persons,  the  tax  gatherers,  priests  or  traders.  Despite  the 
other  forms  of  money,  such  as  copper  rings  which  had  been  in  use  from 
time  to  time  and  from  place  to  place,  there  was  an  impressive 
permanency  and  generality  about  the  use  of  grain  as  money,  especially 
for  large  payments,  in  ancient  Egypt.  This  system  of  warehouse 
banking  reached  its  highest  peak  of  excellence  and  geographical  extent 
in  the  Egyptian  empire  of  the  Ptolemies  (323-30  bc).  Private  banks  and 
royal  banks  using  money  in  the  form  of  coins  and  precious  metals  had 
by  then  long  been  known  and  existed  side  by  side  with  the  grain  banks, 
but  the  former  banks  were  used  chiefly  in  connection  with  the  trade  of 
the  richer  merchants  and  particularly  for  external  trade.  Obviously, 
anything  in  strong  demand  by  the  state,  the  value  and  condition  of 
which  were  carefully  measured  and  guaranteed  by  a  well-trained,  and 
largely  Greek,  bureaucracy,  became  almost  universally  accepted  in 
payment  of  debt.  Long-established  private  merchant  banks  were  almost 
entirely  foreign  and  dominated  in  particular  by  the  Greeks. 

There  was  a  wide  gap  between  this  smoothly  working  system  and  the 
monetary  habits  of  the  native  Egyptian  population.  The  native 
Egyptian's  reluctance  to  accept  metallic  money  probably  suited  the 
Ptolemies'  economic  strategy  very  well.  They  seemed  to  be  forever  short 
of  the  precious  metals  which  were  indispensable  for  foreign  purchases 
and  especially  for  external  military  expenditures,  for  which  purpose 



they  were  forced  to  drain  Egypt  internally  of  its  precious  metals  (very 
much  as  the  internal  gold  coinage  of  Europe  disappeared  to  meet  the 
demands  of  the  First  World  War).  Yet  the  Ptolemies  wished  to  stimulate 
economic  activity  within  Egypt  and  were  fully  aware  that  this  would 
require  more  rather  than  less  money.  If  they  were  short  of  monetary 
metal,  which  not  only  appeared  too  precious  to  be  used  widely  for 
internal  monetary  use,  but  which  in  any  case  was  not  very  popular  with 
the  natives,  there  was  of  course  an  abundance  of  grain  —  and  grain  had 
for  centuries  possessed  a  quasi-monetary  character  in  Egypt.  If  the 
Greek  expertise  in  banking  could  be  adapted  by  the  Egyptian 
bureaucracy  to  the  peculiar  preferences  and  habits  of  the  indigenous 
population,  then  the  Ptolemies  would  have  the  best  of  both  worlds.  This 
they  did.  Thus  it  was  partly  in  order  to  economize  on  internal  coinage 
that  much  greater  use  was  made  internally  of  grain  for  monetary 
purposes:  and  this  meant  a  much  fuller  development  of  the  system  of 
warehouse  banking  and  grain  transfers  than  had  ever  been  previously 
achieved  anywhere.  Consequently,  although  some  rudimentary 
elements  of  a  giro  system  of  payment  had  developed  much  earlier  in 
Babylon  and  Greece  than  in  Ptolemaic  Egypt,  undoubtedly  the  honour 
for  the  first  full  and  efficient  operation  of  that  most  important  financial 
innovation  that  enabled  a  nationwide  circulation  and  transfer  of  credit 
belongs  to  the  Egypt  of  the  Ptolemies. 

We  have  seen  that  most  of  the  external  and  some  of  the  internal  trade 
of  Egypt  was  carried  on  with  the  aid  of  Greek  and  other  foreign 
bankers.  It  was  with  their  aid  that  the  Ptolemies  transformed  a 
scattered  local  warehouse  deposit  system  into  a  fully  integrated  state 
giro  of  such  a  high  standard  of  efficiency  and  sophistication  as  to  be 
almost  beyond  credence  by  modern  man,  who  too  readily  assumes  that 
the  use  of  grain  as  money  must  necessarily  imply  a  primitive  economic 
system.  It  is  perhaps  for  this  reason  that  Preisigke,  one  of  the  most 
authoritative  writers  on  banking  developments  in  the  ancient  world,  in 
his  Giro  System  in  Hellenistic  Egypt  (1910)  emphasizes  its  modernistic 
aspects.  Rostovtzeff,  another  eminent  Egyptologist,  in  his  monumental 
study  of  The  Social  and  Economic  History  of  the  Hellenistic  World 
(1941)  gives  conclusive  evidence  that  by  means  of  the  grain  banks,  the 
banking  habit  had  been  greatly  extended  in  Egypt:  'The  accounts  of  the 
bank  are  especially  interesting  because  they  show  how  popular  recourse 
to  the  banks  became  with  the  people  of  Egypt  .  .  .  the  system  of  paying 
one's  debts  through  the  bank  had  the  additional  advantage  of  officially 
recording  the  transactions  and  thus  providing  important  evidence  in 
case  of  litigation',  and  of  course  greatly  assisted  the  state  in  matters  of 
economic  and  fiscal  control. 



Rostovtzeff  explains  in  considerable  detail  the  accounting  system  of  the 
private  and  royal  grain  banks,  in  order  to  make  it  crystal  clear  that  'the 
payments  were  effected  by  transfer  from  one  account  to  another  without 
money  passing'  (1941,  1285).  Double-entry  bookeeping  had  of  course  not 
yet  appeared,  but  a  system  of  debit  and  credit  entries  and  credit  transfers 
was  recorded  by  varying  the  case  endings  of  the  names  involved,  credit 
entries  being  naturally  enough  in  the  genitive  or  possessive  case  and  debit 
entries  in  the  dative  case.  As  already  stated,  Rostovtzeff  found  it  necessary 
to  mention  'this  detail  in  the  bank  procedure,  familiar  in  modern  times, 
because  many  eminent  scholars  have  thought  it  improbable  that  such 
transfers  were  made  in  ancient  times'  (1941,  1285).  The  numerous 
scattered  government  granaries  were  transformed  by  the  Ptolemies  into  a 
network  of  corn  banks  with  what  amounted  to  a  central  bank  in 
Alexandria,  where  the  main  accounts  from  all  the  state  granary  banks 
were  recorded.  The  separate  crops  of  grain  harvested  by  the  farmers  were 
not  separately  earmarked,  but  amalgamated  into  general  deposits,  except 
that  the  harvests  for  separate  years,  and  therefore  of  different  qualities, 
were  stored  in  separate  compartments  (Preisigke  1910,  69). 

Seed  corn,  the  capital  base  both  of  the  economy  and  of  the  banking 
system,  was  directly  under  the  control  of  the  state  by  means  of  an 
official  appropriately  termed  the  Oeconomus,  whose  duty  it  was  to  see 
that  seed  corn  would  not  be  used  for  any  other  purpose.  Vagaries  of  the 
weather,  though  on  occasions  disastrous,  were  of  course  much  less  of  a 
hazard  in  the  Nile  Delta  than  with  us:  so  that  inflation  or  deflation 
could  to  some  extent  be  controlled  and  the  monetary  scarcity  of  one 
year  be  compensated  by  the  bounty  of  the  next.  Thus  the  giro  system  in 
Egypt  had  come  about  because  of  the  need  to  economize  on  coins  and 
the  precious  metals,  by  the  need  to  supplement  the  existing  private 
banks  with  a  state  bank  system,  and  above  all  by  the  desire  to  spread 
the  banking  habit  throughout  the  community.  It  also  gave  to  the  rulers  a 
closer  control  over  the  economy  for  fiscal  purposes,  while  providing  a 
general  stimulus  for  trade  more  widespread  than  had  previously  been 
possible,  particularly  among  the  poorer  classes.  In  the  new  economic 
organization  of  the  Ptolemies  'two  systems  were  .  .  .  blended,  so  as  to 
form  one  well-balanced  and  smoothly  working  whole:  the  immemorial 
practice  of  Egypt  and  the  methods  of  the  Greek  State  and  the  Greek 
private  household'  (Rostovtzeff  1941,  1286).  Grain  may  have  been 
primitive  money  -  but  the  world's  first  giro  system  transformed  it  into 
an  efficient  medium  of  payments  partaking  of  many  of  the  most 
desirable  features  of  modern  money. 

The  precise  nature  and  extent  of  banking  activity  in  the  ancient 
world  is  likely  to  remain  an  uncertain  matter,  about  which  it  would  be 



unwise  to  be  too  dogmatic.  Heichelheim  has  listed  a  number  of  distinct 
banking  services  such  as  deposit  banking,  'foreign  exchange',  giro, 
secured  and  unsecured  lending  not  only  internally  but  also  externally, 
and  is  satisfied  that  'almost  all  these  forms  of  banking  business  existed 
already  as  early  as  the  third  millennium  BC  .  .  .  we  have  unmistakably 
clear  records  of  such  transactions  between  Babylonians,  Assyrians  and 
other  nations  of  Asia  Minor'  (1958,  II,  134).  He  goes  on  to  show  that 
'incasso'  or  the  taking  in  and  paying  out  of  money  on  behalf  of 
customers'  orders  was  part  of  the  normal  economic  activity  of  the  royal 
and  temple  store  houses,  to  a  more  marked  degree  in  Egypt  than  even  in 

We  can  see  what  a  great  part  this  banking  system  must  have  played  over  the 
whole  of  this  vast  country,  and  how  detailed  was  its  organisation,  by  the 
number  of  its  branches  and  employees  and  by  the  daily  records  and 
accounts  kept  of  the  capital  invested  in  them,  so  that  these  may  well 
compare  with  the  greatest  banks  of  the  nineteenth  and  twentieth  centuries 
ad.  (Heichelheim,  1958,  III,  122) 

To  what  extent,  one  wonders,  are  such  comparisons  between  ancient 
and  modern  times  valid? 

Coin  and  cash  in  early  China 

Chinese  civilization  has  enjoyed  the  longest  history  and  has,  at  least 
until  the  present  century,  directly  involved  far  more  people  than  any 
other.  Yet  for  a  number  of  reasons  it  is  very  largely  ignored  by  western 
writers,4  partly  from  a  contagious  ignorance,  but  mainly  because  our 
modern  western  civilization  has  been  largely  derived  from  Roman  and 
Greek  sources  which  in  their  turn  learned  much  from  Mesopotamia  and 
Egypt  but  nothing  directly  from  China  itself;  from  which,  with  a  very 
few  notable  exceptions,  the  West  was  cut  off  until  the  geographical 
discoveries  of  the  sixteenth  and  later  centuries.  Consequently  the  debt 
which  western  money  owes  to  Chinese  development  is  small  (with  the 
possible  exception  of  the  banknote),  since  the  route  to  modern  money 
follows  the  general  course  of  Hellenistic  and  Romanized  western 
civilization.  Nevertheless  while  obviously  being  unable  to  do  justice  in 
the  space  of  a  few  pages  to  such  a  vast  subject,  there  are  a  few  salient 
features  of  Chinese  monetary  development  which  repay  even  the  most 
cursory  examination. 

4  Thus  Lord  Clark's  Civilisation  (1969),  the  text  of  the  successful  television  series, 
completely  ignores  China. 



We  have  already  noted  how  metal  cowries,  of  bronze  or  copper,  were 
cast  in  China  as  symbols  of  objects  already  long  accepted  as  money.  A 
similar  process  took  place  with  regard  to  spades,  hoes  and  adzes 
(variants  of  the  most  common  tools)  and  also  of  knives.  The  common 
characteristic  of  all  these  metallic  moneys  was  not  only  that  they  were 
cast  but  that  they  were  almost  invariably  composed  of  base  metals. 
Another  important  aspect  of  most  of  the  popular  Chinese  moneys  was 
that  they  had  holes  in  them,  either  at  one  end,  as  with  the  cowrie  and 
knife  currency,  or  in  the  centre,  as  obviously  with  ring-money  and,  later, 
the  conventional  coin  currencies.  The  holes  which  were  mostly  square, 
but  not  uncommonly  circular,  served  two  main  purposes.  First,  in  the 
process  of  manufacture,  a  rod  would  be  inserted  through  a  number  of 
coins  which  could  then  have  their  rough  edges  filed  or  be  otherwise 
finished  in  a  group  of  fifty  or  more  coins  together.  Secondly,  when  in 
use,  they  could  be  strung  together  in  large  quantities  for  convenience  of 
carriage  and  of  trading.  This  leads  us  to  another  vital  feature  of 
Chinese  coins  namely  that  because  they  were  made  of  base  metals  they 
had  a  low  value  density,  and  therefore  it  was  all  the  more  necessary  to 
handle  them  in  very  considerable  quantities  even  for  items  of  relatively 
moderate  value. 

In  contrast  to  the  development  of  coinage  in  and  around  the 
Mediterranean  where  the  precious  metals  held  the  most  important  role, 
China  concentrated  almost  exclusively  on  base  metals  for  coinage,  with 
important  consequences  for  the  differential  development  of  money  in 
the  eastern  and  western  worlds.  In  China,  too,  the  state  played  a 
dominant  role  in  coinage,  and  although  there  were  hundreds  of  mints, 
the  state  insisted  on  central  control  and  uniformity  of  standards.  A 
further  consequence  of  the  base-metal  composition  was  the  ease  with 
which  such  coins  could  be  imitated  and  counterfeited.  The  raw  material 
costs  were  low,  the  method  of  manufacture  was  simple  and  the 
superficial  inscriptions  easy  to  apply.  Consequently  imitation  was 
endemic  particularly  at  the  periphery  of  the  authorities'  power.  Because 
coins  were  confined  to  base  metals  the  precious  metals  generally  had  to 
be  used  for  all  large  purchases  and  had  to  be  weighed  in  the  primitive 
fashion  even  in  modern  times  rather  than  counted,  as  with  coins. 
Consequently,  although  China  was  easily  the  first  to  introduce  'coins', 
the  possibilities  which  they  offered  were  not  as  fully  exploited  as  in  the 
western  world,  where,  once  invented,  their  development  went  ahead 
much  more  quickly. 

The  question  of  when  coins  were  'invented'  depends  very  largely  on 
one's  definition  of  a  coin,  and  one  must  concede  that  a  definition  which 
might  suit  the  numismatist,  who  might  legitimately  be  rather  more 



concerned  with  technical  considerations  than  the  economist,  might  not 
quite  suit  the  latter  who  is,  or  should  be,  much  more  concerned  with 
function  than  with  form  or  technique.  Functionally  speaking,  the  early 
spade,  hoe  and  knife  currencies  were  'coins';  they  were  state- 
authenticated,  more  or  less  identical,  and  guaranteed  symbols  of  value, 
accepted  by  tale  not  by  weight,  with  their  authorization  clearly 
indicated  by  the  inscriptions  they  carried.  Although  the  experts  differ  as 
to  the  earliest  dates  to  be  ascribed  to  these  tool-coins,  they  probably 
were  in  general  use  at  the  end  of  the  second  millennium  BC,  while  round 
coins  were,  according  to  recent  research,  at  least  roughly  contemp- 
oraneous with  those  of  the  eastern  Mediterranean,  though  earlier 
writers  would  date  Chinese  round  coins  very  much  earlier,  in  the 
twelfth  century  bc.^  Part  of  the  difficulty  in  being  as  precise  in  dating 
Chinese  coins  compared  with  others  is  the  fact  that  Chinese  emperors 
would  not  allow  their  names  or  heads  to  appears  on  their  coins,  so  that 
sequential  series  are  difficult  to  establish.  One  may  summarize  the 
difference  between  Chinese  and  western  coinage  by  saying  that,  as  in  so 
many  other  aspects  of  civilization,  China  had  a  long  lead;  but  in  the 
case  of  coinage  this  lead  was  quickly  overtaken  when,  quite 
independently,  a  different  type  of  coinage  was  invented  elsewhere,  using 
superior  techniques  and  precious  metals,  which  were  much  better  for 
most  monetary  functions. 

Ever  since  the  Portuguese  opened  the  sea  route  to  China  round  the 
Cape  of  Good  Hope  the  typical,  small,  mainly  base-metal  coins  of 
China  have  been  known  as  cash,  an  extension  geographically  and 
linguistically  of  the  Tamil  word  for  such  money.  This  cash  was  virtually 
the  same  as  that  circulating  in  ancient  China:  numismatically  speaking, 
time  had  stood  still.  The  enormous  difference  in  values  between  the 
large  gold  coins  favoured  in  the  rest  of  the  world  for  larger  payments 
and  the  small  stringed  'cash',  typically  consisting  of  a  thousand  coins, 
may  be  seen  by  the  average  ratio  between  them  of  a  thousand  to  one. 
Thus  although  China  can  boast  a  'coinage'  of  unbroken  continuity 
going  back  almost  three  thousand  years,  this  longevity  rested  on  a  rigid 
conservatism  which  confined  coins  to  act  only  as  the  small  change  of 
the  economy,  a  position  similar  to  that  occupied  by  coins  in  our  own 
society  today  where  precious  metal  coins,  for  currency  purposes,  have 

It  is  a  remarkable  fact  that  China  did  not  issue  any  substantial 
precious  metal  coinage,  and  then  only  in  silver,  until  1890,  and  even 

5  Contrast  J.  H.  S.  Lockhart  Collection  of  Chinese  Copper  Coins  (1907)  with  J.  Cribb 
'The  Far  East'  in  Coins ed.  M.  J.  Price  (1980). 



then  the  minting  of  traditional  cash  continued  until  1912  (Cribb  1979, 
184).  The  arrested,  or  at  least  limited,  development  of  coinage  in  China 
was  however  in  large  part  responsible  for  stimulating  the  growth  of  a 
powerful  substitute  for  money  —  the  banknote  in  modern  form  —  some 
five  hundred  years  before  similar  developments  took  place  in  Europe. 
Conversely  the  greater  value-to-weight  ratio  of  the  superior  western 
coinage  probably  inhibited  the  development  of  the  banknote  in  Europe; 
a  classic  historical  example  of  good  money  being  an  enemy  of  the  best. 
It  is  appropriate  now  to  consider  the  origin  and  early  development  of 
this  superior  form  of  coinage. 

Coinage  and  the  change  from  primitive  to  modern  economies 

Although  one  cannot  draw  a  clear  line  separating  the  untidily 
overlapping  types  of  'primitive  economies'  from  more  modernistic 
types,  one  can  certainly  affirm  that  in  no  instance  has  this  momentous 
process  of  change  been  more  exhaustively  studied  than  in  the  case  of 
early  Greek  history.  One  might  add  also  that  the  rapid  development,  if 
not  quite  the  original  invention,  of  coinage  of  a  modern  type  appears  to 
have  been  an  essential,  if  possibly  almost  accidental,  catalyst  in  the 
astonishing  development  of  Greek  civilization.  Both  economics  and 
numismatics,  linguistically  and  more  generally  speaking,  come  from  the 
Greek,  originally  meaning  household  management  and  custom  or 
currency  respectively,  though  both  these  terms  naturally  had  rather 
different  connotations  then  than  now. 

We  have  earlier  seen  numismatics  described,  by  Knapp,  as  the  'dead 
body'  of  the  dismal  science.  Nothing  could  be  further  from  the  truth. 
There  must  be  something  about  money  which  generally  stirs  the  blood 
and  occasionally  the  mind,  for  in  recent  years  the  'science'  of 
numismatics  has  been  in  the  sort  of  uproar  that  has  long  distinguished 
the  protagonists  of  the  various  schools  of  monetary  economists.  It  was, 
most  appropriately,  the  matter  of  how  to  interpret  the  history  of  the 
classical  Greeks,  probably  the  most  exciting  but  possibly  also  the  most 
bellicose  of  people,  that  became  the  occasion  for  open  verbal  warfare 
between  the  various  schools  of  thought.  Was  the  Greek  economy 
'modern'  or  was  it  'primitive'?  In  principle  the  conflict  was  not  confined 
to  Greece,  for  it  covered  the  general  interface  between  primitive  and 
modern  societies;  but  it  became  focused  more  sharply  on  the  Greek 
economy  in  general  and  Greek  coinage  in  particular  than  has  been  the 
case  elsewhere. 

Does  the  introduction  of  coinage  mark  a  watershed  in  human 
progress,  or  is  it  simply  a  minor  technical  improvement  in  political 



accountancy  and  in  methods  of  exchange?  Is  the  invention  of  money 
not  only  accidental  but  also  incidental,  not  only  to  the  development  of 
Greek  civilization  in  particular  but  also  to  other  civilizations?  What 
were  the  causes  of  this  invention,  or  in  other  words  what  were  the 
origins  of  coinage?  In  particular  it  is  important  to  realize  that  current 
debates  among  historians  regarding  the  degree  to  which  non-economic 
factors,  mainly  political,  as  opposed  to  economic  factors,  mainly  trade, 
were  responsible  for  the  introduction  of  coinage  are  precisely  the  same 
kind  of  debates  which  arose  in  the  past  and  still  arise  as  to  the  origins  of 
primitive  money.  Indeed,  in  the  form  'how  is  money  created  today'  this 
perennial  argument  still  proceeds.  It  is  in  the  nature  of  money  to  give 
rise  to  these  polarized  attitudes,  and  it  is  this  that  gives  an  added 
dimension  to  the  intrinsically  interesting  history  of  the  origins  of 

This  problem  of  the  degree  of  modernity  of  Greece  and  especially  of 
its  'economy'  (as  a  sort  of  theoretical  average  of  the  distinctly  different 
city-states)  thus  brought  into  sharp  relief  the  misleading 
oversimplifications  of  the  early  school  of  mainly  German  economic 
historians  such  as  Hildebrand,  Bucher  and  Beloch,  who  saw  the  past  in 
terms  of  a  logically  neat  economic  model  consisting  of  a  few  definite 
stages  through  which  each  civilization  had  inevitably  to  pass.  Given  this 
model,  or  some  variant  modified  to  suit  the  purpose  in  hand,  it  became 
customary  to  make  a  wide  and  apparently  meaningful  series  of  heroic 
comparisons  between  different  civilizations  at  the  same  'stage'  of 
development,  with  the  division  between  primitive  and  modern  being 
marked  by  the  rise  of  a  money  economy.  Greek  development,  for 
example,  from  the  seventh  to  fifth  centuries  BC  could  thus  be  seen  to 
correspond  closely  in  its  nature  and  almost  even  in  the  speed  of  its 
growth  with  that  of  modern  Europe  during  the  course  of  the  fourteenth 
to  sixteenth  centuries  inclusive.  The  very  extremes  to  which  these  views 
were  pressed  inevitably  created  a  strong  reaction,  also  led  appropriately 
by  German  writers  such  as  the  sociologist  Max  Weber  and  especially 
the  economic  historian  Johannes  Hasebroek,  who  emphasized  the 
differences  rather  than  the  similarities  between  ancient  Greece  and 
modern  Europe.  Hasebroek  demonstrated  how  elementary  were  Greek 
industrial  techniques,  how  limited  in  scale  and  nature  was  their  trade, 
and  above  all  he  showed  the  fundamental  errors  of  attributing  modern 
concepts  of  national  economic  policy,  such  as  mercantilism,  money 
markets  or  labour  markets  to  the  city-states  of  ancient  Greece 
(Hasebroek  1928). 

Certainly  the  Greeks  liked  to  display  a  distinctly  different,  even 
apparently  hostile,  attitude  towards  trade  and  commerce  from  that 



which  exists  today.  Partly  because  of  their  slaves  but  perhaps  also 
because  of  their  nature,  they  publicly  pretended  to  disdain  business 
affairs.  As  in  all  pre-industrial  societies  agriculture  was  the  main 
occupation  and  landownership  the  basis  of  society.  In  general,  trading 
was  the  business  of  foreigners,  the  'metics'  who  were  not  normally 
allowed  to  own  land  or  receive  the  privilege  of  citizenship.  Most 
manufacturing  (with  a  few  notable  exceptions  which  have  been 
overemphasized  by  the  modernists)  was  on  a  very  small  scale,  hardly 
more  than  cottage  industry  or  handicraft  activity  carried  on  either  in 
the  open  or  in  small  workshops.  Given  these  attitudes,  it  would  clearly 
be  wrong  to  assume  that  the  city-states  pursued  consistent  'economic' 
policies,  whether  'mercantilist'  or  'free-trade'  such  as  those  appropriate 
to  seventeenth-  or  nineteenth-century  Europe.  Nevertheless  when  due 
allowance  has  been  made  for  the  typically  small-scale  and  locally 
confined  nature  of  most  Greek  business,  economic  activities  were 
crucially  important  to  their  development,  and  their  monetary 
innovations  were  essential  stimulants  in  this  process.  An  authoritative 
assessment  by  Antony  Andrewes,  professor  of  ancient  history  at 
Oxford,  gives  the  following  balanced  picture:  'Commerce  and  industry 
in  ancient  Greece  were  exceedingly  important,  but  the  individual 
operations  were  on  a  very  small  scale.'  He  also  warned  that  'although  it 
is  salutary  to  insist  that  the  standard  categories  of  nineteenth-century 
economics  are  not  applicable,  the  reaction  may  go  too  far,  eliminating 
the  effect  of  trade  on  Greek  history  altogether  (Andrewes  1967,  119, 

Nevertheless  the  primitivist  view,  magisterially  reaffirmed  by  Moses 
Finley,  professor  of  ancient  history  at  Cambridge  (1975),  and  his 
numerous  disciples,  continues  to  claim  considerable  support,  despite 
the  accumulation  of  more  recent  'modernistic'  evidence,  such  as  that 
provided  for  example  by  Austin,  Vidal-Naquet  and  Oswyn  Murray.  The 
last,  after  examining  the  degree  to  which  foreign  trade  and  early 
coinage  were  mutual  stimulants,  concluded:  'I  am  not  convinced  that 
trade  plays  as  little  part  in  the  early  use  of  coinage  as  most  modern 
scholars  (i.e.  the  primitivists)  believe'  (Murray  1980,  225).  Although  the 
balance  of  argument  is  thus  beginning  to  veer  away  from  the 
primitivists,  one  of  the  important  permanent  benefits  of  their 
scholarship  has  been  to  demonstrate  conclusively  that  in  general  the 
'economy'  was  inseparable  from  the  body  politic  and  in  particular  that 
the  drive  which  pushed  the  Greeks  into  predominance  as  coin-makers 
came  very  largely  from  non-economic  motives  and  not  simply  from 
commercial  considerations. 

Whereas  earlier  modernistic  writers  confined  their  attention  too 



narrowly  to  the  economic  factors  which  gave  rise  to  coinage  and 
overemphasized  the  degree  to  which  the  'economy'  of  Greece  could  be 
compared  with  that  of  modern  countries,  most  recent  writers  have 
taken  note  of  these  other  important  features  affecting  Greek  monetary 
history.  Thus  Austin  and  Vidal-Naquet  give  as  much  prominence  to  the 
politics  as  to  the  economics  of  money:  'In  the  history  of  Greek  cities 
coinage  was  always  first  and  foremost  a  civic  emblem.  To  strike  coins 
with  the  badge  of  the  city  was  to  proclaim  one's  political  independence' 
(Austin  and  Vidal-Naquet,  1977,  57).  One  might  perhaps  add,  despite 
the  warnings  of  the  primitivists,  that  this  political  badge  of 
independence  conferred  by  striking  their  own  coins  is  not  dissimilar  in 
concept  to  the  fashion  of  newly  independent  ex-colonial  states,  most  of 
them  with  a  recent  history  of  primitive  money,  insisting  on  setting  up 
their  own  central  banks  in  this  century  in  an  attempt  to  proclaim  to  the 
world  both  their  political  and  their  economic  independence.  Had  the 
ex-colonialist  officials  been  more  conversant  with  the  history  of 
primitive  and  ancient  money  they  would  have  welcomed  and  modified 
rather  than  have  impotently  resisted  such  changes. 

Although  the  primitivists  may  well  be  blamed  for  their  overcautious 
refusal  to  make  or  condone  what  others  would  see  as  useful  and  indeed 
essential  intertemporal  generalizations,  they  have  at  least  correctly 
insisted  on  the  important  part  played  by  non-commercial 
considerations  in  the  origins  and  growth  of  coinage.  Thus,  although 
they  themselves  might  hesitate  to  do  so,  the  implied  comparisons  with 
the  non-economic  aspects  of  primitive  and  even  modern  moneys  still 
need  to  be  more  explicitly,  clearly,  consistently  and  emphatically 

The  invention  of  coinage  in  Lydia  and  Ionian  Greece 

Turning  now  to  the  question  as  to  how,  when  and  where  non-Chinese 
coinage  was  first  'invented',  it  should  be  made  clear  that  the  innovative 
road  was  a  long  one,  involving  many  intermediate  stages  though  the 
final  stages  took  less  time  than  had  previously  been  thought.  Whereas 
the  production  of  roughly  similar  metal  ingots,  so  long  as  these  gave  no 
authentic  indication  of  their  weight  or  purity,  can  be  definitely 
excluded,  yet,  when  their  weight  and  purity  became  authenticated  to 
such  a  degree  that  they  were  accepted  fairly  generally  without  having  of 
necessity  to  be  weighed,  then  we  may  take  this  as  being  the  first  step 
towards  coinage  -  but  still  a  long  way  from  the  final  product.  Such  a 
preliminary  stage  was  reached  in  Cappadocia,  where  the  state 
guarantee,  probably  both  of  the  weight  and  purity  of  her  silver  ingots, 



helped  their  acceptance  as  money;  a  position  reached  as  early  as 
between  about  2250  and  2150  BC.  As  the  rather  cumbersome  ingots 
gradually  became  conveniently  smaller,  they  were  fashioned  into  a 
number  of  different  forms  of  more  standardized  monetary  objects,  such 
as  bars,  which  in  their  turn  were  reduced  to  rods,  spits  and  elongated 

The  most  obvious  and  direct  route  to  coinage  was  however  through 
the  improvement  in  quality  and  authority  of  the  kind  of  large  silver 
blobs  or  'dumps'  such  as  those  in  use  in  Knossos  in  the  second 
millennium.  These  Minoan  pre-coins  were  however  not  very  uniform 
and  required  either  a  state  seal  or  a  punched  impression  to  help  their 
still  hesitant  circulation.  However  such  metal  quasi-coins  gradually 
became  more  plentiful  in  Greece,  including  the  Greek  islands  and  the 
eastern  Mediterranean,  during  the  first  half  of  the  first  millennium  BC, 
during  which  the  final  stages  in  the  inventive  process  took  place  quite 
rapidly.  In  retrospect  we  can  see  that  this  invention  meant  that  a  new 
monetary  era  had  definitely  begun,  of  a  form  and  nature  that  by  today 
has  penetrated  virtually  the  whole  world,  and  even  ousted,  in  the  latter 
part  of  the  nineteenth  century,  its  ancient  Chinese  rival. 

Both  Lydia  and  the  mainland  portion  of  Ionia,  the  birthplace  and 
nursery  respectively  of  coinage,  formed  parts  of  what  is  now  Turkey, 
Lydia  lying  along  its  southern  and  Ionia  along  its  south-western  coasts. 
Though  separated  by  400  miles  of  mountainous  terrain  they  were  fairly 
close  neighbours  by  sea.  During  the  seventh  century  BC  their  rulers 
became  united  by  marriage,  and  Lydia,  under  its  mythical  Midas,  its 
semi-legendary  Gyges  and  their  equally  but  verifiably  rich  and  restless 
successors,  aggressively  sought  to  exert  sovereignty  over  the  Greek  city- 
states  of  mainland  Ionia  and  some  of  the  Greek  islands.  Croesus 
succeeded  in  annexing  Phrygia  until  he  in  turn  was  conquered  by  the 
Persians  in  546  BC. 

It  was  during  this  period  that  the  final  stages  in  the  inventive  process 
of  modern-type  coinage  were  completed,  although  the  actual  steps  in 
this  process  remain  matters  of  active  debate  among  the  experts.  Both 
Lydia  and  Ionia  had  a  hand  in  these  developments  but  with  priority 
going  definitely  but  narrowly  (more  narrowly,  it  now  seems  as  the  result 
of  recent  research,  than  was  formerly  believed)  to  Lydia.  The  rivers  of 
this  region  rush  down  from  the  mountains  and  then,  typified  by  the 
River  Maiandros,  silt  up  as  they  'meander'  over  their  plains.  It  was  from 
'panning'  in  these  rivers  that  the  Lydians  and  Ionians  derived  their 
special  type  of  light-yellow  precious  metal,  a  natural  amalgam  of  gold 
and  silver,  which  the  Lydians  probably  fashioned  into  the  world's  first 
struck  or  hammered  coins.  According  to  Greek  legend  the  rich  deposits 



of  the  Pactolus  river  near  Sardis,  the  Lydian  capital,  were  the  result  of 
Midas'  bathing  in  its  torrents  to  wash  away  his  dangerously 
embarrassing  golden  touch  which  had  even  turned  his  food  into  gold. 
This  Lydian  metal  was  called  'electrum'  because  of  its  amber-like 
appearance  (it  was  the  electro-magnetic  attraction  of  amber  that  was 
the  common  test  for  distinguishing  precious  amber  from  worthless 
beads).  As  the  Lydians'  metallurgical  skill  improved,  they  learned  how 
to  separate  the  gold  from  the  silver  and  so  from  both  separate  and 
mixed  ore-sources,  began  issuing  separate  gold  and  silver  coins. 
Croesus  in  the  mid-sixth  century  BC  is  thus  credited  with  the  first 
bimetallic  coinage,  the  manufacture  of  which  began  thereafter  to  be  still 
further  improved. 

At  the  beginning  of  the  seventh  century  BC  it  would  be  stretching  the 
imagination  to  call  the  early  Lydian  dumps  of  electrum  'coins':  well 
before  the  century  closed  they  can  be  clearly  recognized  as  coins.  At 
first  the  bean-shaped  dumps  (possibly  reminiscent  of  cowries),  were 
heavy,  cumbersome,  irregular  in  size  and  unstamped.  They  were  then 
punch-marked  on  one  side  and  rather  lightly  inscribed  on  the  other. 
Such  inscriptions  were  at  first  hardly  more  than  scratches,  and  probably 
meant  more  as  a  guarantee  of  purity  rather  than  of  weight,  although  as 
they  became  more  regular  in  form  and  weight  the  official  authen- 
tication was  taken  to  guarantee  both  purity  and  weight.  All  these  stages 
were  quickly  carried  through  until,  some  time  in  the  second  half  of  the 
seventh  century,  they  had  undoubtedly  become  coins,  rounded,  stamped 
with  fairly  deep  indentations  on  both  sides,  one  of  which  would  portray 
the  lion's  head,  symbol  of  the  ruling  Mermnad  dynasty  of  Lydia. 

It  was  not  unusual  for  some  of  the  earlier  coins  to  carry  a  number  of 
punch-marks,  made  it  is  thought  by  well-known  merchants  some 
distance  from  the  Lydian  city-states  as  a  local  reassurance  regarding  the 
quality  of  the  money.  With  due  allowance  for  the  difference  in  cultures, 
the  concept  of  such  stamping  was  not  unlike  the  'acceptance'  of  bills  of 
exchange  by  merchant  bankers  in  modern  times  to  increase  their 
currency  and  liquidity.  The  Lydians  were  great  traders,  as  were  the 
Ionians.  Indeed  Greek  traders  had  considerable  influence  in  Lydia  and 
on  their  way  of  life  and  of  making  a  living  for  themselves;  that  is 
because  what  we  would  call  their  'economies'  were  basically  similar.  It 
is  little  wonder  therefore  that  the  Lydian  idea  of  coinage  was  so  readily 
taken  up  by  Ionia  and  passed  quickly  westwards  over  the  other  Greek 
islands  to  mainland  Greece.  It  was  this  rapid  series  of  improvements  in 
the  quality  of  coinage  that  enables  us  to  credit  Lydia,  and  shortly 
thereafter  Ionia,  as  being  the  true  first  inventors  of  coins, 
numismatically  speaking;  even  if  from  the  wider,  economic  point  of 



view,  where  greater  emphasis  must  be  given  to  function  rather  than  to 
form,  the  Chinese  quasi-coins  have  a  longer  history.  In  quality,  range  of 
functions  and  influence  over  the  rest  of  the  world,  however,  the 
Lydian— Greek  coinage  has  undoubted  priority. 

The  chronology  of  Lydian  and  early  Greek  coinage  has  undergone  a 
thorough  revision  in  the  last  few  decades,  the  result  of  which  has  been 
not  only  to  establish  a  new  general  consensus  but  also  to  bring  forward, 
closer  to  today,  by  a  century  or  more  the  timing  of  the  various  stages 
which  had  previously  been  accepted,  though  with  growing  reluctance. 
Thus  Milne  in  his  influential  Greek  Coinage  published  in  1931,  thought 
that  'there  can  be  little  doubt  that  before  700  the  Ionians  possessed  a 
plentiful  and  systemized  coinage',  and  considered  it  'reasonable  to 
suppose  that  the  first  coins  [in  Greece  itself]  were  struck  about  or  soon 
after  750  bc'  (1931,  7,  16).  It  is  an  occupational  hazard  of  archaeologists 
in  general  and  numismatists  in  particular  to  be  at  the  mercy  of  the  latest 
pick,  spade  or  metal-detector,  and  as  further  evidence  of  Greek  coinage 
accumulated  so  the  doubts  about  the  previously  accepted  dating 
multiplied.  The  economic  history  of  money,  even  in  its  simplest  and 
most  concrete  form  of  coinage,  is  still  not  an  exact  study,  despite  its 
recent  scientific  accoutrements.  What  has  led,  however,  to  the  current 
strongly  held  agreement  was  a  particularly  important  series  of  findings 
in  1951  under  the  ruins  of  the  temple  of  Artemis  (whom  the  Romans 
later  called  Diana)  which  we  know  was  built  around  600  BC  at  Ephesus, 
perhaps  the  most  important  centre  of  the  ancient  Ionian  mainland. 

The  whole  series  of  changes,  from  unstamped  dumps,  dumps 
punched  on  one  side  only,  and  so  on  to  proper  double-struck  coins  with 
the  lion  head  device,  badge  of  the  royal  house  of  Lydia,  were  found 
together  in  this  important  hoard,  which  included  not  only  some  ninety- 
two  electrum  coins  but  also  a  vast  quantity  of  jewellery  and  precious 
metal  statuettes,  some  three  thousand  items  in  all.  Among  the  many 
results  derived  from  this  crucial  find  and  corroborated  by  others  are 
that  the  first  true  coins  date  from  around  640  to  630  BC.  Thus  the 
literary  tradition  derived  from  Herodotus  and  Aristotle,  which  gave  the 
old  conventional  date  of  687  BC  for  the  earliest  Lydian  semi-coins,  is 
nearer  the  mark  than  was  previously  supposed.  Herodotus  remarked 
most  disparagingly  on  the  gross  commercialism  of  the  Lydians,  for  not 
only  were  they  the  first  to  coin  money,  but  they  also  sold  their  daughters 
into  prostitution  and  were  the  first  people  to  open  permanent  retail 
shops  -  the  latter  said  in  the  same  vein  as  Napoleon's  castigation  of  the 
English  as  a  nation  of  shopkeepers.  The  Artemisian  find  clearly 
confirms  the  literary  tradition  of  Lydian  precedence  in  coinage  since  the 
Lydian  coins  show  all  the  earlier  stages,  whereas  the  Greek  coins,  being 



all  proper  coins,  are  consequently  confidently  considered  to  be  derived 
from  and  direct  copies  of  the  Lydian  finished  product.  The  other  early 
Greek  coinages  have  therefore  been  revised  downwards.  Thus  instead  of 
the  '750  bc'  suggested  by  Milne  for  the  coinage  of  Aegina  we  now  read 
595  BC,  with  the  Athenian  around  575  BC  and  the  Corinthian  around 
570  BC.  This  change  in  chronology  accelerates  the  speed  of  change  and 
the  degree  of  success  achieved  by  Greek  money  in  the  relatively  short 
period  of  a  few  centuries  following  the  Lydian  invention  of  proper 
coins.  This  perceptive  recent  eulogy  captures  the  spirit  of  this 
achievement:  'The  extraordinary  characteristic  of  Greek  coinage  is  the 
speed  with  which  it  developed  from  the  primitive  level  ...  to  become  a 
perfect,  if  minor,  art-form.  By  550  BC  the  techniques  were  still  primitive 
.  .  .  The  fifth  century  saw  the  minting  of  the  most  beautiful  coins  ever 
made'  (Porteous  1980).  The  important  researches  of  Porteous,  M.  J. 
Price  (1980)  and  E.  S.  G.  Robinson  (1956)  have  done  much  to  clarify  the 
previously  misty  chronology  of  early  coinage. 

Since  the  time  of  this  mainly  Greek  invention  the  financial  history  of 
the  world  has  undergone  a  series  of  revolutionary  changes  around  the 
central,  relatively  unchanging  core  of  coinage;  for  subsequently,  to  most 
people  most  of  the  time,  money  has  simply  meant  coins.  In  the  western 
world  for  two  thousand  years  since  coinage  was  invented,  the 
relationship  between  bullion  and  coinage  has  been  the  foundation  of 
private  and  public  finance.  Until  recent  times  coins  have  continuously 
been  the  main,  though  never  the  only,  monetary  medium;  and  although 
there  have  been  units  of  account  for  which  no  coins  existed,  these  units 
of  account  always  stood  in  a  known  and  definite  relationship  to  the 
existing  coins.  Money  has  always  meant  more  than  simply  coins;  but  it 
was  coins  that  thereafter  in  the  main  constituted  money  and  also 
provided  a  simple  and  therefore  universally  understood  and  accepted 
base  and  reference  point  for  all  other  financial  accounting  devices  and 
exchanging  media.  It  is  this  central  characteristic  of  coinage  which 
illuminates  the  hidden  importance  of  its  discovery,  for,  through  the 
Greeks,  the  Lydians  have  given  the  Midas  touch  to  economic  history. 
Subsequently  economic  history  without  coin-centred  money  is  largely 
meaningless.  We  have  now  to  trace  the  steps  by  which  this  exciting 
essentially  Greek  concept  of  money  has  spread  far  and  wide,  east  to  the 
Indus,  west  to  Spain,  south  to  Upper  Egypt  and,  finally  the  route  of 
most  direct  interest  to  us,  northerly  into  western  Europe  and  Britain, 
thence  to  be  re-exported  worldwide. 


The  Development  of  Greek  and 
Roman  Money,  600  bc-ad  410 

The  widening  circulation  of  coins 

From  its  birthplace  in  Lydia  and  Ionia  the  knowledge  and  use  of  coins 
spread  rapidly  east  into  the  Persian  empire  and  west  through  the  rest  of 
the  Ionian  and  Aegean  islands  to  mainland  Greece,  and  then  to  its 
western  colonies,  especially  Sicily.  It  also  spread  northward  to 
Macedonia,  Thrace  and  the  Black  Sea,  but  it  was  only  partially,  reluct- 
antly and  belatedly  accepted  in  Egypt.  Mainland  Italy  also  was  at  first 
rather  slow  in  accepting  the  Greek  financial  innovations,  in  contrast  to 
the  speed  with  which  they  were  adopted  by  Sicily.  Apart  from  these  two 
limited  exceptions  of  mainland  Italy  and  Lower  Egypt,  the  use  of 
coinage  spread  rapidly  around  the  countries  bordering  the  central  and 
eastern  Mediterranean  and  over  the  widespread  and  growing  Persian 
empire  through  Mesopotamia  into  India.  There  is  some  doubt  whether 
India  had  itself  by  this  time  developed  an  embryo  coinage  system  quite 
independently  of  that  in  China  or  Lydia.  Whether  or  not  it  had  itself 
independently  'invented'  coinage,  the  increasingly  close  contacts 
between  India  and  the  Near  East  soon  meant  in  practice  that  Indian 
coinage  became  an  adaptation  of  the  Lydian/Greek  invention  via  first 
the  Persian  and  later  the  Macedonian  empire.  For  those  reasons  the 
direct  influence  of  any  alleged  indigenous  Indian  invention  of  coinage 
was  small  compared  with  the  overwhelmingly  greater  importance  of  the 
indubitably  independent  inventions  of  coinage  in  China  to  the  east  and 
even  more,  the  Lydian-Greek  developments  to  the  west.  The  rapid  east- 
ward spread  of  coins  from  Lydia  was  not  so  much  because  of  Lydian 
traders  going  east  but  rather  a  case  of  the  spoils  of  war  through  the 
Persians  moving  quickly  west.  As  we  have  seen,  Croesus  was  himself 



captured  in  546  BC  during  the  westward  drive  of  the  Persian  armies,  a 
drive  that  was  to  continue  across  the  Greek  islands  and  the  Bosporus, 
and  so  gravely  threaten  the  rise  of  Greek  civilization  to  its  zenith,  to 
what  in  some  ways  has  been  the  finest  hour  in  the  history  of  man.  The 
birth  and  rapid  growth  of  coinage  played  a  significant  part  in  this  story: 
how  significant  is  still  a  matter  of  exciting  dispute. 

As  it  happened  there  was  a  basic  distinction  between  the  development 
of  coinage  east  and  west  of  Ionia.  To  the  Greeks,  coins  were  to  be  minted 
almost  exclusively  in  silver,  with  other  metals,  including  gold  being  of 
no  great  importance.  On  the  other  hand,  the  Persians  and  others  to  the 
east  of  Ionia,  showed  a  very  strong  and  continuing  preference,  like  the 
Lydians  themselves  from  whom  they  directly  derived  their  views,  for 
gold.  Silver  was  a  subsidiary.  In  effect  the  bimetallic  influence  of 
Croesus,  with  gold  being  paramount,  continued  in  the  Persian  empire. 
An  interesting  administrative  division  gradually  developed,  which  meant 
that  the  minting  of  gold  coins  was  the  jealously  guarded  sole  right  of  the 
Persian  emperor,  whereas  silver  coinage,  being  very  much  a  subsidiary, 
was  from  time  to  time  delegated  to  the  satraps  and  minor  rulers  of  the 
Persian  kingdom.  The  period  from  the  middle  of  the  sixth  century  BC  to 
the  death  of  Alexander  in  323  BC  saw  the  world's  first  great  intermixing 
of  eastern  and  western  cultures,  a  process  inescapably  involving 
fundamental  changes  in  the  nature  and  extent  of  money  and  banking. 

The  choice  of  which  metal  to  use  for  this  powerful  new  economic  and 
political  tool  depended  on  a  mixture  of  changing  factors,  among  which 
initially  the  availability  of  the  raw  materials  was  obviously  the  most 
important.  The  availability  of  ores  could  not  however  be  divorced  from 
increasing  metallurgical  skills  and  also  the  availability  of  labour, 
preferably  cheap  labour,  to  mine,  process  and  transport  the  ores.  Long 
before  coins  were  invented,  the  monetary  role  of  the  precious  metals 
made  them  eagerly  coveted,  an  elemental  desirability  which  was  greatly 
increased  as  the  political  importance  of  coinage  began  to  be  more  fully 
appreciated,  particularly  when  the  minting  of  coins  and  their  more  or 
less  enforced  distribution  added  a  new  dimension  to  the  political  and 
military  rivalry  of  that  warlike  age.  In  coinage  as  in  other  matters  the 
Greek  city-states  strove  desperately  for  predominance,  as  did  their  arch- 
rivals  the  Persian  emperors.  Among  the  earliest  and  most  popular  of 
Persian  coinages  were  the  series  known  as  'archers'  because  on  the 
obverse  they  depicted  the  emperor  armed  with  spear,  bow  and  arrows. 
The  pre-Danish,  Danegeld  mentality  of  the  Persian  kings  is  captured  in 
their  threatening  boast,  'I  will  conquer  Greece  with  my  archers';  a  vivid 
illustration  of  contemporary  views  concerning  the  political  power  of 
coinage,  to  buy  allies  and  to  buy  off  potential  enemies. 



Conquest,  taxes,  tribute,  offerings  to  the  temples  and  to  the  gods,  gift 
exchange  and  finally  trade;  all  these  were  methods  of  gaining  precious 
metals  in  amounts  sufficient  to  establish  and  maintain  mints.  As  with 
the  origins  of  money  itself  the  economic  cause  of  the  spread  in  the  use 
of  coinage  was  therefore  only  one,  and  at  first  probably  only  a  relatively 
minor  one,  of  the  many  causes  of  the  rise  of  rival  coinage  systems  and 
of  the  spread  of  coinage  over  the  civilized  world.  In  course  of  time  the 
influence  of  trade  as  a  factor  leading  to  the  flow  of  specie  and  coin  grew 
to  be  much  more  significant,  even  if  some  of  the  more  extreme 
'primitivist'  historians  still  like  to  denigrate  the  economic  factors  in  the 
rise  and  spread  of  coinage. 

Laurion  silver  and  Athenian  coinage 

If  we  match  up  the  factors  favourable  to  minting  with  the  actual  situ- 
ation existing  in  Greece  during  the  sixth  to  fourth  centuries  BC  we  may 
readily  see  the  reasons  for  the  rise  of  Athens  in  particular  to  financial 
prominence,  its  splendid  coinage  mostly  reflecting  but  at  least  partially 
assisting  its  rise  to  fame.  We  have  already  seen  how  the  natural  deposits 
of  electrum  helped  to  give  rise  to  Lydian  and  Ionian  currencies,  and 
how  those  states  soon  learned  to  separate  the  gold  from  the  silver. 
Freely  occurring  silver  deposits  of  any  size  were  rare  in  Europe,  being 
known  only  in  Tartessus  in  Spain  and  in  the  Alps.  Before  the  sixth 
century  pure  silver  was  known  to  occur  only  in  two  quite  small  mines  in 
Greece  and  one  in  Macedonia,  and  consequently  the  ratio  of  silver  to 
gold  was  much  more  favourable  to  silver  than  was  the  case  after  the 
Greeks  learned  how  their  new  sources  could  be  exploited.  In  ancient 
Egypt  silver  had  in  fact  actually  been  more  valuable  than  gold.  The 
changing  relationships  between  gold  and  silver  have  bedevilled  mon- 
etary history  from  the  beginning  of  time  right  up  to  the  bimetallist 
controversies  in  USA  and  Europe  towards  the  end  of  the  nineteenth 

At  first  the  potentially  plentiful  supplies  of  silver  were  technically 
inseparable  from  their  argentiferous  lead  ores  and  therefore  could  not 
be  exploited.  Luckily  for  the  Greeks,  necessity  appeared  to  mother  the 
invention  of  new  processes,  enabling  them  to  unlock  vast  reserves  of 
silver  on  their  own  doorsteps.  'It  is  very  probable  that  technological 
improvements  resulted  in  the  increased  exploitation  in  silver-bearing 
lead  ores  in  mining  areas  such  as  Laurion  near  Athens  and  in 
Macedonia  and  the  Greek  Islands;  and  this  new  availability  of  silver  led 
to  the  striking  of  coinage  throughout  Greek  lands'  (M.  J.  Price  1980, 
27).  The  close  connections  between  coinage  and  economic  development 



is  indicated  by  Professor  Michell  who  believed  that  'It  was  no  accident 
that  the  invention  of  metal  coinage  was  made  in  the  seventh  century 
when  industry  and  commerce  were  fast  advancing',  (1957,  313),  and  he 
might  have  added,  the  necessary  technical  skills  kept  pace  with  this 

Cheap  labour  meant  slaves,  mostly  working  in  domestic  service  and 
on  the  land  but  also  used  in  'manufacturing'  and  especially  employed  in 
great  concentrations  in  the  mining  industry.  The  real  cost  of  slaves,  that 
is  their  annualized  capital  costs  plus  their  operational  costs,  had  to  be 
balanced  against  the  value  of  their  output.  Of  course  the  jargon  of 
equating  real  marginal  costs  with  the  value  of  marginal  output,  or  of 
reckoning  sunk  capital  costs  against  the  realizable  sales  value  of  the 
human  capital  involved  -  all  this  would  have  been  as  nonsensically 
unintelligible  in  those  terms  in  ancient  Greece  as  it  is  Greek  to  the 
majority  of  small-scale  bosses  today.  But  there  can  be  little  doubt  that 
such  economic  factors  inescapably  determined  the  real  'surplus'  or 
'profits'  available  to  the  employer  in  ancient  Greece  as  in  modern  small- 
scale  industrial  or  mining  activity.  Despite  the  aristocratic  denigration 
of  manual  labour  there  was  a  limit  to  which  slaves  could  be  used  as 
substitutes  for  voluntary  paid  labour  by  the  Greeks  themselves:  'and  so 
the  great  majority  of  the  Greeks  both  in  classical  and  Hellenistic  times 
worked  just  as  hard  as  anybody  else  in  any  time  or  country'  (Michell 
1957,  15).  Socrates'  father  was  a  mason,  Demosthenes'  father  a 
manufacturer  of  armour,  while  Aristotle  married  the  daughter  of  a 
banker,  Hermias  (who  was  crucified  by  the  Persians).  Among  the 
majority  of  artisans  in  the  Athenian  Assembly  were  blacksmiths, 
carpenters,  farmers,  fullers,  merchants,  shoemakers  and  shopkeepers: 
after  all  had  not  Solon  at  the  beginning  of  the  sixth  century  decreed 
that  all  fathers  should  teach  their  sons  a  craft?  As  Michell  shows,  the 
prejudice  against  manual  labour  was  a  comparatively  late  development 
in  Greece,  though  once  established,  it  persisted  through  Hellenistic  into 
Roman  times.  St  Paul,  free-born,  highly  educated,  a  citizen  of  no  mean 
city,  was  still,  as  a  tent-maker,  very  sensitive  about  this  strong  prejudice: 
'We  labour,  working  with  our  hands,  being  reviled'  (1  Corinthians 
4.12).  It  is  also  commonplace  but  none  the  less  true  to  observe  that 
Plato's  Republicans  essentially  based  on  an  economic  interpretation  of 
history,  which  at  least  reflected  the  importance  to  contemporary 
classical  Greek  society  of  being  able  to  enjoy  the  leisure  necessary  for  a 
cultured  life  mainly  because  the  necessities  of  life  were  adequately 
secured  through  an  abundant  supply  of  cheap  labour.  Furthermore,  in 
other  city-states  the  majority  of  the  citizens  were  probably  artisans,  as 
Plato  showed  regarding  Athens.  Consequently  the  aristocratic  disdain 



of  labour  should  not  be  taken  by  'primitivist'  academics  at  face  value  as 
a  means  of  devaluing  the  economic  forces  fashioning  everyday  Greek 
life.  Greek  citizens  could  afford  to  be,  or  could  pretend  to  be,  dismissive 
about  the  bases  of  their  economy:  we  need  not  confirm  their  claims. 

Although  some  of  the  more  Marxist  modernists  have  grossly 
exaggerated  the  number  of  slaves  in  Greece,  they  certainly  played  a 
major  role  in  the  dirty,  heavy  and  dangerous  task  of  mining  for  the 
precious  metals.  Aegina,  one  of  the  first  of  the  western  Greek  islands  to 
produce  its  own  coins,  was  once  held  to  employ  470,000  slaves  -  on  a 
rocky  and  mountainous  island  with  a  total  area  of  about  35  square 
miles!  Much  more  reliable  are  modern  estimates  that  the  silver  mines  of 
Laurion,  which  supplied  Athens  with  its  raw  material,  employed  in 
periods  of  its  most  intensive  working,  some  30,000  slaves.  This  large 
aggregate  labour  force,  predominantly  of  slaves  led  by  'metics'  but 
mostly  owned  by  Greeks,  was  exploited  by  means  of  the  city-state 
authorities,  who  granted  leases  to  Athenian  citizens  who  employed 
their  own  gangs  of  slaves,  thus  combining  large-scale  development  with 
small-scale  management,  the  same  kind  of  approach  which  the  Greeks 
used  so  successfully  in  the  construction  of  their  imposing  public 

The  Laurion  mines  some  twenty-five  miles  south  of  Athens  derived 
their  name  from  the  'laurai'  or  horizontal  adits  or  alleys  driven  into  the 
hillsides.  When  these  horizontal  'drifts'  were  worked  out  deeper  mining 
became  necessary.  The  ore  was  chiefly  galena,  a  lead  sulphide,  and 
yielded  a  rich  reward  of  between  30  to  300  ounces  of  silver  per  ton.  One 
of  the  first  Athenian  rulers  to  recognize  the  importance  of  these  mines 
was  the  tyrant,  Peisistratus,  and  the  'owls'  first  coined  by  him  in  546  BC, 
and  stamped  with  the  Athenian  emblem  which  gave  them  their  name, 
became  famous  throughout  the  ancient  world.  A  particularly  rich  seam 
was  struck  around  490  BC,  part  of  the  proceeds  of  which  were  saved  by 
the  Athenians,  after  powerful  persuasion  by  Themistocles,  and  used  to 
build  the  fleet  that  destroyed  the  Persians  under  Xerxes  at  the  battle  of 
Salamis  in  480  BC.  Thus  was  Greek  civilization  saved  from  being 
strangled  on  the  eve  of  its  greatest  triumphs.  Themistocles'  wisdom 
enabled  the  Athenians  to  conquer  the  Persians  with  their  'owls'.  Most 
of  the  great  battles  of  history,  however  overwhelmingly  victorious  for 
one  side  at  the  end  of  the  day,  are  at  some  time  during  their  course,  'the 
nearest  run  thing  you  ever  saw  in  your  life'  -  as  Wellington  said  of 
Waterloo.  Who  would  dare  say  (even  among  the  'primitivists')  that  it 
was  not  the  economic  wealth  of  Athens  and  the  wise  investment  of  her 
silver  that  enabled  the  Greek  soldiers  and  fleet  to  be  trained  and 
supplied  well  enough  to  carry  the  day? 



A  further  indication  of  the  extent  and  importance  of  the  Laurion 
mines  to  Athens  may  be  seen  from  the  fact  that  well  over  2,000  shafts 
were  sunk,  the  deepest  being  386  ft,  with  the  main  shafts  up  to  6  ft  in 
diameter,  and  with  each  leading  to  numerous  small  branch  galleries  of 
about  2  ft  square,  along  which  the  miners  -  and  probably  their  children 
as  in  nineteenth-century  British  coalmines  -  crawled  as  they  extended 
their  workings.  We  have  looked  briefly  at  Athens  alone  since  it  was  the 
most  important  of  Greek  cities.  To  a  lesser  degree  the  same  kind  of 
developments  took  place  in  a  large  number  of  other  city-states  such  as 
Aegina  and  Corinth,  with  the  exception,  as  already  noted,  of  Sparta, 
which  stubbornly  clung  to  its  iron  bars.  Given  such  facts,  it  is  difficult  to 
agree  to  the  minimization  of  the  economic  basis  of  Greek  life  which  is 
the  tendency  of  the  more  extreme  'primitivists'. 

Greek  and  metic  private  bankers 

Coins  had  thus  become  the  foundation  of  the  Greek  financial  system. 
To  what  extent  and  in  what  manner  did  it  influence  the  development  of 
banking?  Given  the  enormous  energy  devoted  to  coinage  it  should  come 
as  no  surprise  to  learn  that  Greek  banking  was  largely  fashioned  to  sup- 
plement coinage,  and  not  largely  to  supplant  it,  as  in  our  modern  age. 
Nor  was  it  a  complete  substitute  for  coinage  as  was  necessarily  the  case 
in  ancient  Sumeria  and  partially  and  deliberately  the  case  in  Ptolemaic 
Egypt.  Until  the  Banking  Act  1979  it  was  the  common  practice  in 
Britain  to  deride  the  lack  of  a  proper  definition  of  banking  by  referring 
to  legal  cases  which  defined  a  banker  as  someone  carrying  on  the  busi- 
ness of  banking,  and  banking  as  a  business  carried  on  by  a  banker!  If 
the  line  between  deposit-takers  and  recognized  banks  remains  function- 
ally unclear  even  today  after  the  passing  of  that  Act,  one  should  not, 
therefore,  expect  to  be  able  precisely  to  define  the  nature  and  functions 
of  banks  and  bankers  in  ancient  Greece,  despite  'primitivist'  claims  that 
it  is  inappropriate  to  talk  of  modern-type  banking,  investment  or 
capital  'markets'  in  those  early  days.  It  is,  however,  as  easy  to  point  to 
similarities  as  it  is  to  contrasts,  with  the  similarities  being  especially  sig- 
nificant if,  as  already  noted  in  manufacturing  and  mining,  the  smaller 
scale  of  Greek  activity  is  borne  in  mind.  Despite  the  primitivists  it  is 
more  than  probable  that  the  goldsmith-bankers  of  seventeenth-century 
London,  who  also  came  to  banking  through  specializing  in  exchanging 
foreign  coinages,  would  readily  recognize  the  Athenian  bankers  as  their 
close  relatives,  while  even  the  nineteenth-century  private  merchant 
bankers  would  probably  not  feel  too  far  from  home. 

One  of  the  important  by-products  of  Greek  prejudice  against  manual 



labour  and  against  the  everyday  boredom  of  business  life  was  to  leave 
the  field  wide  open  to  enterprising  'metics'  or  foreign  residents,  many 
of  whom  were  to  become  particularly  prominent  in  banking.  The  first 
such  banker  of  whom  we  have  records  is  Pythius,  a  merchant  banker 
who  operated  throughout  western  Asia  Minor  at  the  beginning  of  the 
fifth  century  BC  and  was  purported  to  have  become  a  multimillionaire. 
The  earliest  banker  in  Greece  proper  was  Philostephanus  of  Corinth, 
who  prospered  early  in  the  first  half  of  the  fifth  century.  Among  his 
many  important  customers  was  the  far-sighted  Themistocles,  who 
deposited  the  considerable  sum  of  seventy  talents  in  Philostephanus' 
bank.  Among  the  earliest  and  most  important  bankers  in  Athens  were 
the  citizens  Antisthenes  and  Archestratus  who  built  up  their  banking 
business  in  the  second  half  of  the  fifth  century  BC.  They  appear  to  have 
worked  in  close  partnership  and  jointly  employed  a  promising  slave, 
Pasion,  who  rose  to  eclipse  his  former  masters  and  became  the  most 
wealthy  and  famous  of  all  Greek  bankers,  gaining  in  the  process  not 
only  his  freedom  but  also  Athenian  citizenship.  Pasion  began  his 
banking  career  in  394  BC  and  retired  in  371  BC,  having  amassed  one  of 
the  largest  private  fortunes  known  in  classical  Greece.  In  addition  to  his 
more  customary  banking  business  Pasion  directed  the  largest  shield 
factory  in  Greece,  at  Athens,  where  around  200  slaves  were  employed. 
He  owned  ships,  farms  and  a  number  of  houses  in  Attica.  He  also 
conducted  an  embryo  hire-purchase  or  at  least  hiring  business,  lending 
for  a  lucrative  fee  domestic  articles  such  as  clothes,  blankets,  silver 
bowls  and  so  forth.  In  turn,  among  his  employees  was  the  slave 
Phormio  to  whom  Pasion  granted  his  freedom.  We  learn  that  Phormio 
likewise  set  up  in  banking  business  on  his  own.  He  married  Pasion's 
widow  shortly  after  the  death  of  Pasion,  and  also  grew  to  be 
enormously  rich. 

Among  rich  moneylenders  who  might  not  quite  be  ranked  as  full 
bankers  were  the  partners  Nicobulus  and  Euergus  who  financed  slave- 
owners taking  leases  for  working  the  Laurion  silver  mines.  Among 
other  Greek  bankers  of  whose  names  we  have  record  are  Aristolochus 
(who  became  bankrupt),  Dyonysodorus,  Heracleides  (who  also  became 
bankrupt),  Lycon,  Mnesibulus,  Parmenon  and  Sumathes,  the  latter  at 
least  remarkable  for  his  honesty.  These  lesser  but  named  bankers  stand 
halfway  in  status  and  function  between  the  famous  houses  like  Pasion 
and  Phormio,  who  conducted  a  wide  variety  of  mostly  large-scale 
merchant  banking  business,  and  the  much  more  numerous  but 
anonymous  moneylenders  and  money  exchangers,  whose  activities  were 
such  a  common  and  essential  feature  of  everyday  Greek  life.  These 
minor  bankers  and  money-changers  would  normally  conduct  their 



business  in  or  around  the  temples  or  other  public  buildings,  setting  up 
their  trapezium-shaped  tables  (which  usually  carried  a  series  of  lines 
and  squares  for  assisting  calculations),  from  which  the  Greek  bankers, 
the  'trapezitai',  derived  their  name,  much  as  our  name  for  'bank'  comes 
from  the  Italian  'banca'  for  bench  or  'counter'.  The  continued  close 
association  of  money-changing  with  banking  is  probably  best  known  to 
us  through  the  episode  of  Christ's  overturning  of  such  tables  in  the 
Temple  of  Jerusalem  (Matthew  21.12). 

Money-changing  was  the  earliest  and  remained  the  commonest  form 
of  banking  activity,  especially  at  the  retail  level,  and  was  an  essential 
aspect  of  trading  because  of  the  great  variety  of  different  types  and 
qualities  of  coinage  and  the  prevalence  of  imitation  and  counterfeiting 
which  have  always  appeared  to  be  inseparably  associated  with  coinage. 
Some  of  the  largest  bankers  like  Pasion  himself  were  so  successfully 
immersed  in  'wholesale'  banking  that  they  diverted  this  less  prestigious 
side  of  retail  money-changing  to  smaller  bankers.  One  of  the  most 
important  and  well-recorded  kinds  of  lending  business  carried  out  not 
only  by  bankers  but  sometimes  by  other  rich  persons  willing  to  take  a 
risk,  was  'bottomry'  or  lending  to  finance  the  carriage  of  freight  by 
ships.  Its  high  risks  were  recognized  by  allowing  considerably  higher 
than  average  rates  of  interest.  'Undoubtedly,  of  all  banking  and  loan 
business',  says  Michell,  'the  most  general  and  at  the  same  time  most 
lucrative  and  hazardous  were  the  loans  made  to  merchants  and 
shipmasters  for  furtherance  of  commercial  ventures  in  overseas  trade,' 
(1957,  345).  Reference  has  already  been  made  to  lending  for  leasing 
mining  activities,  especially  in  the  Laurion  mines,  but  this  kind  of 
financial  assistance  was  more  widely  spread  in  financing  farming  and 
the  construction  gangs  working  on  public  buildings. 

As  for  deposits,  although  the  particular  banking  customs  varied,  like 
the  coinage,  from  city  to  city,  these  were  mostly  either  current  or 
deposit  accounts,  with  the  latter  including  (as  still  to  a  much  lesser 
degree  with  modern  banks)  valuables  of  all  kinds,  such  as  jewellery  and 
bullion  as  well  as  cash.  Contrary  to  modern  practice,  no  interest  was 
paid  on  such  cash  deposits,  whereas  interest  was  paid  on  current 
accounts.  The  probable  reason  for  this  reversal  of  modern  banking 
habits  was  that  whereas  valuables  including  cash  were  kept  intact  in 
'safe'  deposits,  we  know  that  it  was  the  current  accounts  which  the 
Greek  bankers  relied  upon  for  their  lending  business,  for,  as 
Demosthenes  —  who  was  heavily  involved  in  legal  issues  for  bankers  and 
their  clients  -  remarked,  any  banker  whose  lending  was  based  solely  on 
his  own  capital  was  headed  for  bankruptcy.  Current  accounts,  then, 
provided  the  major  sources  of  money  for  lending,  and  since  they  paid 



interest,  such  lending  had  to  reflect  these  costs  plus  the  risks  attached. 
Most  lending  was  secured,  and  the  various  legal  systems  of  the  city- 
states  laid  down  what  could  or  could  not  be  accepted  as  security  for 
loans.  Among  securities  accepted  for  such  loans  were  copper,  silver, 
gold  and  even  slaves.  Armour  or  farming  instruments  were  sometimes 
among  objects  not  allowed  to  be  used  for  purposes  of  borrowing,  the 
security  and  sustenance  of  the  city-state  obviously  came  before  private 

Recorded  rates  of  interest  varied  between  the  exceptionally  low  rates 
of  just  over  6  per  cent,  to  what  Demosthenes  considered  a  normal  and 
fair  10  per  cent  for  run-of-the-mill  business,  to  between  20  and  30  per 
cent  for  such  risky  business  as  lending  for  shipping,  although  in  the 
calculations  regarding  marine  lending  it  is  difficult  to  disentangle  the 
interest  from  the  insurance  elements  of  the  recorded  contracts.  In 
general,  the  Greek  city-states  did  not  lay  down  maximum  rates  for 
usury.  In  any  case  the  records  of  Greek  banking  are  only  the  tip  of  the 
iceberg,  for  much  of  Greek  business  was  informal  and  spontaneous, 
based  mostly  on  the  private  banker  employing  the  minimum  of  written 
accounts,  in  sharp  contrast  to  the  situation  in  contemporary  Egypt  or, 
to  a  lesser  degree,  in  Rome  despite  the  fact  that  it  was  mostly  Greek 
bankers  who  taught  Rome  and  the  rest  of  the  world  what  banking 
meant,  at  any  rate  after  the  advent  of  the  coin. 

The  Attic  money  standard 

Despite  the  leadership  of  Athens  which  enabled  her  to  spread  the  sphere 
of  influence  of  her  coinage  system  -  the  Attic  silver  standard  -  over  a 
large  part  of  the  western  Mediterranean  and  occasionally  beyond,  there 
were  always  large  numbers  of  rival  coinage  systems  and  quite  a  few 
complicated  standards  of  financial  accounting  in  use  at  any  one  time, 
creating  a  persistently  powerful  and  widespread  demand  for  'bankers' 
who  could  find  their  way  through  the  money  maze.  This  wasteful  dupli- 
cation of  multiple  coinage  systems  was  a  probably  inevitable  result  of 
the  vigorous  particularism  that  gave  life  and  meaning  to  the  Greek  city- 
state.  Few  of  these  rival  states,  however,  had  the  advantages  in  size, 
political  power  and  prestige  -  and  as  the  largest  entrepot  of  Greece,  in 
trade  and  commerce  -  that  Athens  could  boast.  Above  all  they  lacked 
access  to  such  an  abundant  source  of  silver  as  that  enjoyed  by  Athens. 
Consequently  the  most  commonly  accepted  among  a  large  number  of 
coinage  systems  was  that  of  Athens.  Since  pre-coinage  moneys  had  to 
be  weighed  it  was  a  natural  development  for  first  the  abstract  account- 
ing systems  and  then  the  complete  coinages  to  be  related  to  such 



weights,  the  basic  unit  of  which  throughout  the  Greek-speaking  world 
was  the  'drachma'  or  'handful'  of  grain,  though  the  precise  weight 
taken  to  represent  this  varied  considerably,  for  example  from  less  than  3 
grams  in  Corinth  to  more  than  6  grams  in  Aegina. 

Taking  the  silver  drachma  as  the  main,  central,  standard  monetary 
unit,  one  moved  down  to  the  less  valuable  and  proportionally  lighter 
sub-unit,  the  obol,  six  of  which  made  one  drachma.  The  obol  itself  had 
an  earlier  pre-coinage  existence  as  the  pointed  'spit'  or  elongated  nail, 
and  six  of  these  constituted  a  customary  handful  similar  to  that  of  the 
even  earlier  grain-based  measures.  Below  the  obol  came  the  chalkous,  in 
normal  times  the  smallest  monetary  unit,  and  made,  as  its  name 
implied,  of  copper,  just  like  our  use  of  'coppers'  for  small  change.  Eight 
chalkoi-  usually  -  made  one  obol.  Moving  above  the  central  unit  of  the 
drachma,  and  ignoring  for  the  moment  the  stater  and  other  multiples  of 
the  drachma,  we  come  first  to  the  mina,  roughly  a  pound  in  weight, 
equivalent  to  one  hundred  drachmae,  and  finally  the  talent,  equivalent 
to  sixty  minae.  If  we  bear  in  mind  the  necessary  caution  that  this  widely 
used  system  was  only  one  among  many  we  may  build  up  the  following 
lists  of  Attic  coins  and  weights: 

Units  of  account  and  coins 

(a)  8  copper  chalkoi  =  1  silver  obol 

(b)  6  obols  =  1  silver  drachma 

(c)  2  drachmae  =  1  silver  stater 

Units  of  account  and  weight  only 

(d)  100  drachmae  (or  50  staters)  =  1  mina 

(e)  60  minae  (or  6,000  drachmae)  =  1  talent 

Both  the  mina  and  the  native  Greek  talent  were  derived  from  the 
Babylonian  sexagesimal  system  and  throughout  Greece,  Asia  Minor 
and  much  of  the  Near  East  the  basic  unit  of  money  was  the  stater 
meaning  literally  'balancer'  or  'weigher'.  In  the  west  and  mainland 
Greece  it  was  initially  the  two-drachma  coin,  the  didrachm  which 
became  the  standard,  while  a  number  of  eastern  city-states  preferred 
their  own  three-drachma  staters.  It  was  however  the  Athenian  double- 
stater,  the  four-drachma  or  tetradrachm,  with  the  owl  on  one  side  and 
head  of  the  goddess  Athena  on  the  other,  which  eventually  became  the 
ancient  world's  most  popular  coin  by  far  and  therefore  in  practice  the 
most  common  standard  or  stater  by  which  other  coins  were  weighed 
and  judged.  Thus  the  term  'stater'  referred  in  various  places,  depending 
on  local  mint  preferences,  to  two,  three  or  four  drachmae  when  coined 



in  silver,  though  electrum  and  gold  staters,  worth  between  twenty-four 
to  thirty  silver  drachmae  were  not  uncommon  in  eastern  Greece  where 
they  had  to  compete  closely  with  the  golden  Persian  'dark'  coins. 
Bearing  in  mind  the  caution  that  'standards'  were  not  universal,  the 
eastern  Greek  standard,  as  befitted  its  geographical  location,  kept  more 
strictly  to  the  sexagesimal  system,  as  follows:- 

Units  of  account  and  coins 

(a)  12  copper  chalkot  =  1  silver  obol 

(b)  6  obols  =  1  silver  drachma 

(c)  3  drachmae  =  1  silver  stater 

Units  of  account  and  of  weight  only 

(d)  60  staters  =  1  mina 

(e)  60  minae  =  1  talent 

When  copper  became  used  as  money  in  ancient  Greece  a  copper 
sheet  of  around  60  lb  in  weight,  roughly  as  much  as  the  average  man 
could  conveniently  carry,  became  the  common  concrete  equivalent  of 
the  'talent'.  A  strong  man  could  of  course  carry  more,  hence  the 
symbolic  significance  of  talent.  Neither  the  talent  nor  the  mina 
appeared  in  coin  form  but  were,  like  the  pound  sterling  throughout  the 
Middle  Ages,  simply  units  of  account.  Coinage  covered  an  enormously 
wide  value  range  from  the  equivalent  of  twenty-four  or  twenty-five 
drachmae  for  a  gold  coin  at  the  top  of  the  range  to  small  base-metal 
coins  or  silver  bits  of  coins  like  fish-scales  or  even  smaller  almost  pin- 
head-size  silver  coins  at  the  bottom  of  the  range.  The  famous  Athenian 
silver  'owls'  usually  in  one-,  two-,  and  four-  (and  more  rarely  in  eight-, 
ten-  and  twelve-)  drachma  pieces,  became  by  far  the  most  widely  used 
coins  in  the  ancient  world,  lasting  for  nearly  600  years,  until  the  supply 
dwindled  after  the  exhaustion,  given  existing  techniques,  of  the  Laurion 
mines  in  25  BC.  Their  basically  unchanged  design  and  unadulterated 
quality  gave  rise  to  countless  but  intrinsically  unflattering  imitations 
throughout  the  Mediterranean  and  Middle  East. 

Although  values  initially  fell  as  coins  became  commoner,  most  Greek 
cities,  and  particularly  Athens  itself,  were  determined  to  maintain  the 
quality  and  reputation  of  their  coinage.  Two  obols  were  the  day's  pay  of 
a  labourer,  while  the  architect  of  the  Erechtheum  temple  on  the 
Acropolis  earned  about  three  times  as  much,  a  drachma  a  day.  As  a 
rough  but  useful  guide  as  to  the  value  of  such  coins,  the  average  day's 
pay  for  a  manual  worker  in  Great  Britain  in  1982  was  over  £27,  while  a 
first-rate  consultant  architect  (not  necessarily  of  the  quality  of  those 



that  built  the  Parthenon)  would  expect  to  earn  at  least  £200  a  day, 
worth  in  today's  inflated  currency  some  25,000  drachmae. 

The  development  of  the  subsidiary  coinage  system  was  therefore  of 
much  greater  importance  than  we  might  at  first  think,  and  not  until 
these  smaller  coins  were  minted  did  the  new  invention  play  its  full  part 
in  the  everyday  life  of  ancient  Greece.  Furthermore  the  high  values  of 
the  precious-metal  coins  provided  a  commensurately  greater 
temptation  for  counterfeiters,  and  at  the  same  time  speaks  much  for  the 
pride  of  the  cities  in  maintaining  their  standards  which  they  enforced  by 
strong  penal  codes.  Hikesias,  the  father  of  Diogenes,  the  famous 
philosopher,  escaped  rather  lightly  when  he  was  merely  banished  for 
adulterating  the  silver  coinage.  Thus  the  Attic  system  ranging  from 
subsidiary  coinages  of  low  value  for  the  everyday  use  of  ordinary  people 
through  the  medium  values  of  silver  coinages  for  a  wide  range  of  local 
and  overseas  trade,  to  high-value  gold  coinages  used  mostly  outside 
Greece  together  formed  the  indispensably  strong  basis  for  trade, 
banking  and  political  finance.  So  well  known  were  the  Attic  and  eastern 
standards  that  they  could  fairly  easily,  with  the  aid  of  the  ubiquitous 
bankers,  be  adapted  to  fit  the  Persian  and  other  mainly  gold-based 

With  such  a  welter  of  coinages  plus  a  variety  of  different  standards 
one  may  easily  appreciate  the  need  for  exchange  bankers  and  the  strong 
desire  for  a  more  widespread  uniform  standard.  All  the  city-states 
agreed  on  the  need  for  uniformity  -  provided  that  it  was  either  their 
own  or  that  of  their  current  ally  that  was  chosen  to  be  the  standard.  In 
456  BC  Athens  forced  Aegina  to  take  Athenian  'owls'  and  to  cease 
minting  her  own  'turtle'  coinage.  In  449  BC  Athens  in  furtherance  of  still 
greater  uniformity  issued  an  edict  ordering  all  'foreign'  coins  to  be 
handed  in  to  the  Athenian  mint  and  compelling  all  her  allies  to  use  the 
Attic  standard  of  weights,  measures  and  money.  However  as  Athenian 
power  declined,  so  the  former  subject  city-states  reissued  their  own 
currencies  —  and  what  was  much  worse,  when  Sparta  in  407  BC  cut 
Athens  off  from  her  silver  mines  at  Laurion  and  released  around  20,000 
slaves  from  the  mines,  Athens  herself  was  faced  with  a  grave  shortage  of 
coins.  Faced  with  this  emergency  she  minted  84,000  golden  drachmae 
from  the  statue  of  Nike,  or  Victory,  and  other  treasures  which  adorned 
the  Acropolis. 

When  the  coin  shortage  got  even  worse  in  406  and  405  BC  she  issued 
bronze  coins  with  a  thin  plating  of  silver  —  with  the  result  that  the  good 
coins  tended  to  disappear,  which  made  the  shortage  even  worse.  This 
infamous  situation  was  made  the  occasion  of  what  is  probably  the 
world's  first  statement  of  Gresham's  Law,  that  bad  money  drives  out 



good.  In  Aristophanes'  comedy,  The  Frogs,  produced  in  405  BC  the 
author  wrote:  'I  have  often  noticed  that  there  are  good  and  honest 
citizens  in  Athens  who  are  as  old  gold  to  new  money.  The  ancient  coins 
are  excellent  .  .  .  well  struck  and  give  a  pure  ring;  everywhere  they 
obtain  currency,  both  in  Greece  and  in  strange  lands;  yet  we  make  no 
use  of  them  and  prefer  those  bad  copper  pieces  quite  recently  issued  and 
so  wretchedly  struck'  (Aristophanes  1912).  The  base  coins  were 
demonetized  in  393  BC  and  Athens  regained  her  reputation  for  fine 
coinage.  Her  civic  pride  was  completely  healed  when  the  citizens,  in  380 
BC  voted  the  money  to  rebuild  their  golden  treasures  in  the  temples  of 
the  Acropolis,  a  feat  which  took  them  until  330  BC  to  complete. 
However,  her  drive  for  greater  financial  uniformity  had  to  await  the 
more  powerful  armies  of  Alexander  and  Rome. 

Banking  in  Delos 

Athens'  predominance  in  political  and  cultural  affairs  and,  to  a  large 
extent,  therefore  in  trade,  coinage  and  banking,  was  continuously  being 
challenged.  Among  its  many  rivals  for  leadership  in  banking  the  island 
of  Delos  may  claim  a  special  place.  Delos  rose  to  prominence  during  the 
late  third  and  early  second  centuries  BC.  Its  importance  in  banking 
history  can  hardly  be  exaggerated.  As  a  barren  offshore  island,  its 
people  had  to  live  off  their  wits  and  make  the  most  of  the  island's  two 
great  assets  -  its  magnificent  harbour  and  the  famous  temple  of  Apollo. 
Around  these  its  trading  and  financial  activities  grew  to  support  a  large 
and  very  cosmopolitan  city  of  some  30,000  inhabitants,  developing  first 
as  a  centre  of  Aegean  and  later  of  Mediterranean  commerce  and 
banking  and  one  of  the  principal  clearing  houses  of  the  ancient  world. 
It  was  an  entrepot  for  the  Macedonian  trade  in  timber,  pitch,  tar  and 
silver,  the  best  place  for  the  slave  trade  and  the  main  western  depot  for 
eagerly  sought  oriental  wares  brought  along  the  ancient  caravan  routes 
from  Arabia,  India  and  even  China. 

We  have  well-documented  continuous  accounts  as  kept  by  its 
magistrates,  recording  its  main  banking  and  trading  activities  for  over 
400  years.  Its  economy  was  typical  of  that  prevailing  in  the  other 
temples  which  stood  in  close  connection  with  the  city  but  was  probably 
the  best  of  its  type  and  one  of  the  most  enduring.  Whereas  in  its  earliest 
days  'banking  in  the  Athens  of  Pasion  was  carried  on  exclusively  in 
cash:  deposit  contracts,  Giro  transfers  and  receipts  in  writing  do  not 
appear  to  have  been  known  at  this  period',  by  the  time  the  Bank  of 
Delos  was  in  operation  'it  was  particularly  interesting  that  transactions 
in  cash  were  replaced  by  real  credit  receipts  and  payments  made  on 


simple  instructions,  with  accounts  kept  for  each  client'  (Orsingher 
1964,  4).  Some  indication  of  the  public  wealth  of  the  city  authorities 
and  the  close  involvement  of  the  state  with  its  bank  is  given  by  the 
substantial  savings  in  cash  form,  in  two  public  treasuries  or  chests,  kept 
for  greater  protection  within  the  temple  of  Apollo  itself.  The  different 
purposes  for  which  these  reserves  were  kept  were  indicated  on  the 
sealed  jars  kept  separately  within  either  the  'public'  or  the  'sacred' 
chest.  Some  of  these  turned  out  to  be  very  long-term  savings,  for  the 
seals  of  one  series  with  over  48,000  drachmae  remained  unbroken  for 
about  twenty  years,  from  188  to  169  BC. 

The  direct  interest  of  Delos  to  us  stems  from  its  being  both  a 
historical  and  geographical  link  in  the  wider  and  more  flexible 
development  of  banking  business.  It  connected  the  early  Greeks  with 
the  later  Hellenistic  and  Roman  banking  eras  and  it  provided  the  bridge 
which  joined  Italian  traders  and  bankers  of  the  West  with  those  of  the 
eastern  Mediterranean  and  beyond.  The  Italian  merchants  who  were 
attracted  first  for  purely  trading  purposes  became  domiciled  and  rose  to 
prominence  as  citizens  of  Delos,  eventually  taking  over  from  the  Greeks 
and  becoming  the  most  important  bankers  in  the  city,  maintaining  the 
closest  links  with  the  main  centres  of  the  rising  Roman  empire.  The 
early  Greek  colonies  in  Sicily  and  southern  Italy  were  replicas  of 
Corinth  and  Delos;  and  we  have  seen  how  Roman  citizens  became 
increasingly  important  as  merchants  and  bankers  in  Delos  and  over  the 
Aegean  islands.  Their  activities  spread  in  similar  fashion  throughout 
the  central  and  western  Mediterranean,  gradually  extending  into  the 
interior  of  Gaul  and  Spain.  For  political  reasons  Rome  destroyed 
Carthage  and  Corinth,  the  main  commercial  rivals  of  Delos,  and  in 
contrast  until  well  into  the  first  century  BC  strongly  supported  the 
economy  of  Delos,  strengthening  its  position  as  one  of  the  chief  free 
ports  of  the  Mediterranean.  Consequently,  it  was  a  most  natural 
outcome  that  the  Bank  of  Delos  became  the  model  most  closely  and 
consciously  imitated  by  the  banks  of  Rome.  In  matters  of  culture  and 
commerce,  the  Hellenistic  and  Roman  empires  merged  into  each  other 
with  mixed  results,  some  baneful  and  some  beneficial  as  we  shall  now 
see,  at  least  so  far  as  their  financial  and  commercial  aspects  are 

Macedonian  money  and  hegemony 

The  greatest  military  exploits  in  history  were  naturally  not  without 
their  important  economic  and  financial  causes  and  consequences,  even 
if  those  were  clearly  of  a  second  order.  Even  so  they  should  not  be 



neglected,  for  the  economic  and  financial  effects  linger  on  far  beyond 
the  more  flamboyantly  obvious  political  results.  We  have  seen  how  the 
enormously  wealthy  Persian  inheritors  of  the  Babylonian  and  Assyrian 
empires  had  twice,  in  490  and  480  BC,  threatened  the  independence  of 
Athens  and  therefore  of  all  the  other  Greek  city-states,  and  how  the 
ready  wealth  of  Athens  was  a  not  unimportant  factor  in  defeating  the 
Persians  abroad.  We  shall  now  see  how  finance  and,  especially,  readily 
minted  coinage,  played  no  small  part  in  defeating  the  Persians  in  the 
centre  of  their  own  empire. 

The  mainland  route  from  Asia  to  Greece  lay  through  Thrace  and 
Macedon,  kingdoms  of  such  minor  importance  that  they  were  simply 
bought  off  by  the  Persian  'archers'.  However,  this  situation  changed 
with  the  accession  of  Philip  II  in  360  BC.  Philip  formed  one  kingdom  out 
of  a  number  of  previously  warring  tribes  and  used  their  unity  as  the 
basic  strength  of  his  growing  economic  and  military  power,  so  that  well 
before  the  end  of  his  reign  he  became  the  acknowledged  leader  of  all  the 
Greek  states,  despite  the  hostility  of  Demosthenes'  verbal  attacks  -  his 
vitriolic  Philippics.  During  Philip's  reign  the  agricultural  basis  of 
Macedon  was  greatly  improved  by  vast  schemes  of  irrigation,  land 
drainage  and  flood  control.  As  Alexander  reminded  his  people  shortly 
after  he  became  king  on  the  assassination  of  his  father  in  336  BC:  'My 
father  took  you  over  as  nomads  and  paupers,  wearing  sheepskins, 
pasturing  a  few  sheep  on  the  mountains  ...  he  made  you  inhabitants  of 
cities  and  brought  good  order,  law  and  customs  into  your  lives.'  With 
better  irrigation  and  drainage  and  with  the  canalization  of  sections  of 
its  more  important  rivers  the  agricultural  output  of  the  rich  alluvial 
plains,  far  larger  than  those  available  to  the  Greeks  farther  south, 
provided  the  basis  for  building  up  the  new  towns  and  increasing  their 
professional  armies.  Philip  was  therefore  as  well  supplied  with  grain  as 
the  Greeks  and  far  better  supplied  with  cattle  and  with  the  horses  which 
were  to  form  his  elite  cavalry.  Robin  Lane  Fox,  who  adds  his  biography 
of  Alexander  to  the  thousand  others,  repeats  a  common  view  that  the 
martial  superiority  of  the  Macedonians  was  in  part  due  to  their 
generous  meat  diets.  Napoleon  was  obviously  not  the  first  to  note  that 
an  army  marches  on  its  stomach:  'Macedon's  more  frequent  diet  of 
meat  may  not  be  irrelevant  to  her  toughness  on  the  battlefield'  (1973, 
28).  By  raiding  his  neighbours,  Philip  could  add  substantially  to  the 
produce  of  his  own  pastures  -  one  such  raid  alone  reaped  a  harvest  of 
20,000  mares.  From  such  a  vast  wealth  of  horses,  Alexander  could  take 
his  pick,  for  his  twelfth  birthday,  of  his  Bucephalus  which  was  to  carry 
him  for  fifteen  years  and  many  thousands  of  miles.  As  an  integral  part 
of  Philip's  policy  of  Hellenization  a  considerable  number  of  prominent 



Greeks  were  invited  to  Macedon,  including  Aristotle  who  acted  as  tutor 
to  Alexander  for  three  years  of  his  youth,  from  thirteen  to  sixteen. 

It  was,  however,  the  substantial  economic  improvements  that 
provided  the  essential  foundation  for  the  growth  of  Macedonian 
political  power  and  enabled  Philip  to  succeed  in  maintaining  the 
allegiance  of  most  of  the  Greek  city-states  and  overcome  even  the 
persuasive  influence  of  Demosthenes  on  the  Athenians.  Under  Philip, 
the  Greek  centre  of  gravity  moved  from  what  Socrates  had  denigrated  as 
the  'frog-ponds'  of  the  south  to  the  wider  vistas  of  the  north;  a  vital 
first  step  in  preparation  for  the  vast  continental  empire  that  was  shortly 
to  be  opened  up  to  Macedonian  and  Greek  arms  and  Greek  culture. 
Greece's  strategic  geographical  position  at  the  crossroads  of  three 
continents  was  about  to  be  used  to  full  advantage. 

Towards  the  end  of  his  reign  Philip  began  issuing  his  golden  stater 
depicting  his  victory  in  the  chariot  race  at  the  Olympic  games  of  356  BC 
on  one  side  and  the  head  of  Zeus  on  the  other.  These  coins,  and  their 
inevitable  imitations,  all  advertising  his  power  and  influence,  spread  far 
and  wide,  particularly  among  the  Celtic  tribes  of  central  and  north- 
western Europe,  and  even  crossed  the  Channel,  where  they  were  among 
the  earliest-dated  coins  to  have  been  found  in  Britain.  Philip's  numerous 
coins  were  important  for  a  number  of  reasons,  quite  apart  from  their 
obvious  role  in  improving  the  media  of  exchange  and  accounting.  By 
widely  demonstrating  his  achievements  in  the  Olympics  they  confirmed 
his  social  and  therefore  also  his  political  acceptance  as  leader  of  the 
Greek  nation;  Greeks  could  no  longer  dismiss  the  Macedonians  as 
rough  and  rude  barbarians.  To  many  who  used  the  coins,  the  head  of 
Zeus  was  mistakenly  interpreted  as  that  of  Philip  himself,  and  so 
prepared  the  way  for  the  issue  of  coinage  to  become  more  fully  accepted 
as  the  personal  right  of  the  king,  a  process  carried  to  fulfilment  by 
Alexander  and  his  followers  in  the  late  Hellenistic  kingdoms.  Also,  as 
already  indicated,  his  coins  'were  to  have  a  dramatic  influence  on  the 
Celtic  coinages  of  Europe'  (M.  J.  Price  1980,  41).  Furthermore  Philip 
appears  deliberately  to  have  minted  far  more  coins  than  were  currently 
justified  by  the  needs  of  trade  or  of  his  armies,  probably  to  act  as 
readily  available  financial  reserves  to  support  the  anti-Persian  campaign 
for  which  he  was  actively  preparing  in  the  period  immediately  preceding 
his  assassination.  Alexander  had  need',  says  Professor  N.  G.  L. 
Hammond,  'of  a  prolific  and  stable  coinage'  and  'the  considerable  stock 
of  gold  philippeioi  and  silver  tetradrachms  served  part  of  his  needs  in 
336  and  335  bc'  (1981,  156). 



The  financial  consequences  of  Alexander  the  Great 

When  Alexander  succeeded  to  the  throne  in  336  BC  he  thus  had  at  his 
disposal  all  the  necessary  material  resources  -  the  armies,  allies,  sup- 
plies and  reserves  of  coinages  and  so  on  -  that  Philip's  unfinished  task 
required.  Alexander  himself,  then  barely  twenty,  was  soon  to  display  a 
leadership  and  inspiration  unrivalled  in  history,  which  in  the  remark- 
ably short  space  of  less  than  a  decade,  established  a  vast  Hellenistic 
sphere  of  influence  of  two  million  square  miles,  stretching  from 
Gibraltar  to  the  Punjab.  The  armies  which  achieved  those  results  were 
paid  in  cash,  and  since  they  were  well  fed,  expensively  trained,  highly 
paid  and  well  supported  by  ancillaries,  a  rich  and  ready  supply  of 
coinage  became  a  prerequisite  of  Macedonian  imperialistic  ambitions. 
Macedon  was  fortunate  therefore  in  having  rich  mineral  resources  of 
iron,  copper,  silver  and  gold,  all  of  which,  being  the  personal  property 
of  the  king,  could  be  used  directly  by  him  in  ways  which  made  them 
more  effective  than  when  ownership  was  divided  among  a  large  number 
of  city-states.  The  payment  of  his  troops  was  similarly  his  personal 
responsibility,  and  thus,  given  his  explicit  political  ambitions,  the  finan- 
cial groundwork  for  the  conquest  and  occupation  of  the  Persian  empire 
by  Macedonian  troops  and  mercenaries  was  being  single-mindedly, 
deliberately  prepared.  Initially  this  was  bound  to  be  a  costly  business, 
with  the  costs  being  met  very  largely  from  Macedonian  and  Greek 
resources:  only  later  on  did  the  enormous  booty  captured  by  the  army 
more  than  pay  its  costs.  Some  indication  of  the  size  of  these  costs  may 
be  gleaned  from  the  following  facts. 

The  cavalry,  the  elite  in  Alexander's  highly  skilled  army,  were  paid  on 
average  two  drachmae  a  day,  an  infantryman  one  drachma  and  an 
ordinary  mercenary,  two-thirds  of  a  drachma,  or  twice  the  pay  of  a 
labourer.  In  addition,  basic  rations  were  probably  supplied  free.  By  the 
time  this  army  was  fully  engaged  in  Asia  Minor  the  total  cost  was 
around  twenty  talents  a  day,  that  is  some  half  a  ton  of  silver,  or  120,000 
drachmae  (N.  G.  L.  Hammond  1981,  155ff.).  Thus  by  a  combination  of 
foresight,  luck  and  conquest  Alexander  was  not  only  easily  able  to 
afford  such  enormous  and  initially  'unproductive'  expenditure  but  very 
quickly  took  control  over  coins,  bullion  and  other  essential  resources  in 
quantities  far  beyond  the  dreams  of  either  his  father  or  his  followers. 

Once  Alexander  had  established  himself  in  Asia  Minor  the  drain  on 
Macedonian  finance  was  first  halted  and  then  reversed,  for  the 
victorious  army,  with  little  cost  to  itself  in  lives  or  equipment,  had  little 
need  of  replenishment  from  its  home  base.  Not  only  could  it  live  off  the 
country  but  all  the  many  mints  with  their  stores  of  bullion  were  taken 



over  en  route,  and  issued  as  many  coins  as  Alexander  required.  After 
the  capture  of  the  Persian  emperor's  family  at  the  Battle  of  Issus  in  333 
BC,  Darius  began  to  negotiate  terms  for  peace.  At  the  siege  of  Tyre,  he 
offered  Alexander  10,000  talents  as  ransom  plus  his  daughter's  hand  in 
marriage  and  all  the  lands  to  the  west  of  the  Euphrates.  'I  would 
accept,'  said  his  senior  general,  Parmenio,  'were  I  Alexander.'  'I  too,' 
said  Alexander,  'were  I  Parmenio.'  Alexander's  demand  for  'all  Asia' 
was  soon  granted  including  all  the  wealth  of  the  Persian  kingdoms.  The 
capture  of  Damascus  brought  him  2,600  talents  in  coin  alone,  and  there 
were  similar  if  smaller  amounts  from  a  score  of  other  mints.  The  reverse 
flow  of  coinage  to  Europe,  quite  apart  from  the  demands  of  trade,  may 
be  illustrated  by  the  3,000  talents  which  Alexander  is  known  to  have 
sent  to  Antipater  in  Macedon  in  331  BC,  a  considerable  sum,  but  merely 
one  of  the  first  in  a  veritable  flood  of  coinage,  easily  spared  from  his 
rapidly  growing  fortune  in  coin  and  bullion.  A  similar  sum  of  3,000 
talents  was  also  given  by  Alexander  that  year  to  Menes  who  deputized 
for  him  after  he  left  Syria.  The  captured  treasury  at  Susa  contained  an 
incredible  amount  of  bullion  including  50,000  talents  of  silver.  When 
the  dying  Darius  was  finally  captured  in  330  BC  a  further  7,000  talents 
were  taken. 

In  addition,  Darius'  central  mint  at  Babylon  was  taken  over  and  new 
currencies,  designed  by  Alexander's  moneyers,  poured  from  what  was 
the  most  prolific  mint  in  the  Persian  empire,  second  only  to  that  at 
Amphipolis,  the  chief  mint  of  Macedon.  However  there  were  a  large 
number  of  other  substantial  mints,  such  as  those  at  Ecbatana,  Sardis, 
Miletus,  Aradus,  Sidea,  Sydon,  Citium  and  Egyptian  Alexandria,  to 
name  only  the  more  important,  which  together  far  surpassed  the 
previous  total  Greek  and  Macedonian  output.  Furthermore,  because  of 
the  demands  not  only  of  his  army,  but  also  of  his  engineers,  scientists, 
explorers,  retainers  and  the  whole  auxiliary  forces  accompanying  his 
campaigns  -  which  Alexander  saw  as  being  much  more  of  a  civilizing, 
Hellenizing  mission  than  simply  military  conquest  —  the  mints  became 
highly  active,  coining  temple  and  royal  treasures  which  otherwise  would 
not  have  entered  circulation.  Thus  not  only  was  the  supply  of  money, 
and  of  intrinsically  full-bodied  money,  vastly  increased,  so  too  was  its 
velocity  of  circulation. 

The  methods  by  which  a  large  proportion  of  this  immense  coinage 
was  distributed  further  guaranteed  its  rapid  velocity  and  wide  dispersal. 
After  all,  his  soldiers  were  to  a  considerable  extent  mercenaries, 
themselves  children  of  mercenaries,  and  with  their  Asian  and  Eurasian 
wives,  providers  of  the  next  generation  of  mercenaries.  Over  seventy 
towns,  new  or  extended,  were  established  by  Alexander,  at  least  twenty- 



one  of  them  named  after  him  —  and  one  after  his  horse  —  from  Egypt  to 
'Alexandria  Eschate'  or  'the  farthest',  north-east  of  Samarkand.  Young 
families  and  new  towns  meant  high  spending;  and  even  single  soldiers 
are  not  on  average  noted  for  parsimony.  The  rigid  discipline  maintained 
throughout  Alexander's  forces  prevented  personal  looting,  and 
therefore  made  his  soldiers  dependent  on  their  generous  salaries.  These 
were  frequently  handsomely  enhanced  by  large  bounties  to  the  soldiers 
themselves  and  to  the  families  of  the  fallen.  After  the  capture  of  Susa, 
Alexander  distributed  bounties  ranging  from  600  drachmae  for  his 
Macedonian  cavalrymen  to  50  drachmae  for  the  ordinary  mercenary. 
Generous  gratuities  were  paid  to  men  who  through  age  or  sickness,  had 
become  unfit  for  further  service.  They  were  either  sent  home  with  their 
gratuities  or  allowed  to  settle  locally.  Thus  '1,000  over-age  Mace- 
donians garrisoned  the  citadel  of  Susa'  (N.  G.  L.  Hammond  1981,  164). 
In  mid-323  BC,  at  the  treasure-base  of  Ecbatana  Alexander  distributed  a 
total  bounty  of  2,000  talents  to  those  Greek  troops  who,  after  faithful 
service,  had  decided  to  return  home  to  Greece.  Professor  Hammond  has 
also  shown  how  Alexander's  care  for  his  troops  extended  even  to 
assuming  responsibility  for  their  debts  to  civilians,  and  he  had  his 
accountants  pay  off  such  debts  amounting  to  some  2,000  talents.  He 
also  gave  wedding  presents  to  some  10,000  of  his  soldiers  who  married 
at  Susa.  His  troops  were  obviously  big  spenders  -  or  as  the  modern 
economist  might  say,  they  had  a  high  marginal  propensity  to  consume. 
A  large  multiplier  thus  intensified  the  effect  of  the  high  velocity  of 

The  accidents  of  geology  and  the  chances  of  war  combined  with  the 
preferences  not  only  of  those  who  had  authority  over  minting  but  also 
their  many  unofficial  competitors,  who  issued  imitations  or 
counterfeits,  to  make  the  various  metallic  ratios  a  bothersome,  hit-or- 
miss  affair.  Whatever  the  ratio  that  was  finally  chosen  -  and  as  soon  as 
coins  were  made  the  choice  was  inevitable  -  the  initially  established 
ratio  was  bound  to  come  under  pressure.  These  pressures  were 
considerably  lightened  if  one  metal  alone  was  given  official  preference 
for  coinage.  In  that  case  all  the  other  metals  had,  by  reason  of  their 
being  ignored  for  official  coinage,  to  bear  the  brunt  of  fluctuating 
values.  It  was  more  difficult  to  juggle  with  two  or  even  more  so  with 
three  metals;  hence  the  tendency  through  time  for  the  cheaper  metals  to 
become  merely  tokens,  and  for  bimetallist  currencies  to  lose  their 
originally  chosen  relationships.  In  a  way,  it  was  fortunate  for  the 
Greeks,  who  needed  to  build  up  public  acceptance  for  their  innovation, 
that  they  had  such  an  abundance  of  silver  and  so  little  of  their  own 
gold,  so  that  silver,  the  best  metal,  numismatically  speaking,  became 



also  the  best  for  their  own  economic  and  political  purposes.  Therefore, 
except  for  emergencies,  they  ignored  gold  for  coinage  and  let  others, 
such  as  Croesus  and  the  Persians  who  absorbed  his  kingdom,  wrestle 
with  bimetallism. 

It  is  believed  that  the  Persians,  who  learned  of  coinage  from  Lydia, 
also  took  over  its  bimetal  ratio,  but  in  any  case  the  Persians  soon 
established  and  enforced  throughout  their  domains  a  ratio  of  13V?:1,  i.e. 
forty  units  of  silver  were  equal  to  three  units  in  weight  of  gold.  The 
values  of  their  coins  were  consistently  issued  at  this  ratio  of  40:3.  They 
could  not  of  course  enforce  this  ratio  outside  their  kingdoms,  so  that 
the  ubiquitous  Greek  trapezitai  were  kept  busy  and  wealthy  exploiting 
divergences,  and  in  the  process,  like  any  such  arbitrage,  reducing  the 
widest  margins  to  differences  which  traders  could  tolerate.  Even  so  the 
mainland  Greeks  would  usually  expect  to  purchase  one  unit  of  gold 
with  only  twelve  units  of  silver,  and  this  acted  as  a  barrier  to  the 
penetration  of  Persian  gold  'darks'  (named  after  Darius  I  who  first 
issued  them  as  early  as  about  500  bc)  into  western  Greece,  so  that  the 
monometallist  silver  monopolies  which  Aegina,  Corinth  and  Athens 
operated  in  their  own  regions  were  not  really  threatened  by  foreign, 
golden  intrusions. 

Such  cosy  relationships  broke  down  however  when  huge  deposits,  not 
only  of  silver,  but  also  of  gold,  were  opened  up  by  Philip  in  Thrace  and 
Macedon.  In  Philip's  earlier  years  he  had  used  the  Thracian  and  not  the 
Attic  standard  for  his  silver,  and  for  the  less  important  gold  issues  used 
the  Attic  standard.  However,  as  his  vast  precious  metal  resources  were 
more  fully  exploited,  the  gold/silver  ratios  had  to  be  re-established.  In 
order  to  safeguard  and  develop  the  new  gold  finds  at  Mount  Pangaeus 
near  Crenides,  the  'town  of  fountains',  which  Philip  rebuilt  and 
renamed  Philippi,  he  set  up  a  new  mint  to  help  in  producing  his  new 
golden  Philippeioihovn.  around  356  BC.  It  is  an  indication  of  the  greater 
relative  supply  of  gold  to  silver  that,  toward  the  end  of  his  reign,  Philip 
was  issuing  his  silver  and  gold  coinage  at  a  10:1  ratio.  There  were  other 
precious  mineral  deposits  in  his  enlarged  kingdom,  but  Mount 
Pangaeus  alone  yielded  1,000  talents  of  gold  and  silver  a  year.  As  we 
have  seen,  these  mineral  reserves  helped  political  and  economic  power 
to  move  north  from  Greece  to  Macedon  in  the  second  half  of  the  fourth 
century.  Philip  and  Alexander  (who  continued  minting  posthumous 
Philippeioi,  just  as  his  followers  continued  issuing  posthumous 
Alexanders')  naturally  took  full  advantage  of  these  god-given  riches 
and  put  their  existing  mints  into  continuous  operation  at  Pella,  the 
capital,  at  Philippi,  Damastium,  and  above  all  at  Amphipolis. 
Alexander  also  opened  a  new  mint  in  330  BC  at  Sicyon  in  the 



Peloponnese.  The  mint  at  Amphipolis,  in  the  eighteen  years  between 
346  and  328  BC  produced  a  vast  total  of  thirteen  million  silver 
tetradrachms  plus  a  considerable  but  unknown  amount  of  gold  coins. 
All  this  activity  in  the  Macedonian  homeland  was  in  addition  to  the 
continued  and  vastly  increased  output  of  the  existing  mints  in  Greece, 
Asia  Minor,  Syria,  Egypt,  Mesopotamia  and  indeed  throughout  the 
Hellenistic  world.  Thus,  in  Professor  Hammond's  words,  'we  may 
realize  the  stupendous  increase  in  coined  money,  expenditure  and 
employment  which  Alexander  brought  about  in  Europe  alone,  quite 
apart  from  the  economic  revolution  in  Asia'  (1981,  258). 

Alexander  could  not  be  bothered  with  trying  to  maintain,  as  his 
father  had  done,  an  Attic  standard  in  gold  and  a  Thracian  for  silver. 
Instead  he  insisted  on  employing  the  Attic  standard  only,  not  just  in 
Macedon,  but,  so  far  as  was  practicable,  throughout  his  new  empire. 
Alexander  did  however  follow  Philip's  custom  rather  than  the  Persian 
ratio  in  his  bimetallist  (though  mostly  silver)  coinage  system.  Despite 
the  long-established  and  widespread  acceptance  of  the  Persian  13V3:1 
ratio  Alexander  must  have  seen  this  for  what  it  was  —  an  awkward  and 
complicated  relationship  which  inhibited  the  quick  and  ready  growth  of 
trade  which  he  was  determined  to  promote.  For  he  was  a  man  with  a 
mission,  in  a  hurry  to  integrate  the  best  of  Asian,  African  and  European 
civilization  under  the  undoubted  supremacy  of  that  of  the  Greeks. 

Coinage  was  at  the  heart  of  communication,  hence  nothing  should 
inhibit  its  wider,  more  common  and  ready  acceptance.  And  so 
Alexander  cut  through  the  knotty  problem  of  bimetallic  ratios  as  he  did 
with  the  fabled  knot  at  Gordion.  Ten  to  one,  that  was  the  sensible, 
practical,  straightforward  ratio  to  adopt:  let  slaves  and  metics  quibble 
over  minor  fractions.  In  any  case  Alexander  had  the  reserves  of  either 
gold  or  silver  to  apply  wherever  the  divergences  were  too  marked,  so  as 
to  remedy  a  shortage  of  either  one  or  the  other.  His  armies  abroad, 
wherever  they  were,  accepted  the  Attic  standard  and  the  Alexandrian 
ratio,  and  this  was  sufficient  guarantee  for  a  wider  general  acceptance 
of  these  simple  and  beneficial  reforms  which  enabled  coinage,  as  part 
and  parcel  of  the  Greek  way  of  life,  to  penetrate  far  and  wide  at  a  speed 
which  otherwise  might  have  taken  centuries. 

While  it  would  be  cynical  in  the  extreme  to  attempt  to  measure  the 
significance  of  Alexander  simply  in  terms  of  his  economic  and  financial 
achievements,  nevertheless  in  recognizing  that  these  alone  were  so 
substantial  and  far-reaching,  one  cannot  fail  to  marvel  at  this 
additional  if  restricted  view  of  his  many-sided  genius.  (Whether  cynical 
or  not,  Marxist  historians  might  feel  constrained  to  attempt  such  an 
impossibly   one-sided   assessment.)    Coins   were   by   far   the  best 


propaganda  weapon  available  for  advertising  Greek,  Roman  or  any 
other  civilization  in  the  days  before  mechanical  printing  was  invented. 
We  have  seen  how  Philip's  representation  of  Zeus  as  king  of  the 
Olympian  gods  became  commonly  associated  with  the  king  himself. 
This  trend  became  much  more  marked  in  the  case  of  the  coins  issued  by 
Alexander  and  his  Hellenistic  rulers,  for  the  head  of  Heracles 
(Hercules)  which  appeared  on  these  coins  probably  intentionally  bore  a 
remarkable  resemblance  to  the  idealized  portrait  of  Alexander.  After 
all,  it  was  generally  believed,  possibly  even  by  Alexander  himself,  that 
he  was  descended  from  Heracles.  The  Lydians  had  begun  by  issuing 
coins  portraying  their  kings,  but  the  vastly  more  important  output  of 
coins  in  mainland  and  more  democratic  Greece  had  avoided  such 
pretensions.  Philip  and  Alexander  carried  the  original  Lydian  concept 
of  monarchical  badges  forward  into  all  parts  of  the  ancient  world,  and, 
via  the  Celts  and  Romans,  into  western  Europe  and  Britain.  After 
Alexander  the  power  to  coin  money  became  more  obviously,  though 
not  exclusively,  a  jealously  guarded  sovereign  power,  the  first  to  be 
assumed  by  any  conquering  army  (just  as  British  Military  Authority 
money  accompanied  the  army  in  the  Second  World  War).  On  this  note 
we  may  conclude  our  account  of  the  financial  consequences  of 
Alexander  by  taking  the  year  197  BC,  when  the  Roman  general 
Quinctius  Flaminius  defeated  Philip  V  at  the  battle  of  Cynocephalae,  as 
marking  the  end  of  Macedonian  hegemony.  Thereafter  the  once  mighty 
Macedon  became  a  mere  vassal  of  Rome,  and  the  Greek  city-states 
reverted  to  their  disunited  particularism.  However  in  the  eastern 
Selucid  and  Egyptian  Ptolemaic  empires  the  Hellenistic  influences 
continued,  though  on  a  declining  trend,  for  many  generations.  Needless 
to  say  Flaminius  commemorated  his  victory  by  minting  gold  staters 
bearing  his  own  image  —  the  first  representation  of  a  living  person  to 
appear  on  Roman  coins.  The  Greeks,  who  taught  the  world  the 
meaning  of  coined  money,  found  the  Romans,  though  slow  starters,  the 
most  persuasively  powerful  imitators. 

Money  and  the  rise  of  Rome 

The  abstract  legendary  and  linguistic  influence  of  Rome  on  our  basic 
monetary  terms  and  standards  complements  the  enormous  historic 
importance  of  her  actual  coins.  The  tribes  of  Latins  and  Etruscans  had 
emerged  as  neighbours  by  the  time  Rome  was  founded,  traditionally  in 
753  BC,  on  the  site  of  the  lowest  bridgeable  point  of  the  Tiber,  Italy's 
only  really  navigable  river.  On  the  Capitol,  one  of  the  famous  seven 
hills,  the  early  Romans  built  a  temple  to  Jupiter  and,  naturally  enough, 



the  temple  became  the  most  secure  place  for  keeping  reserves  of  money 
in  whatever  forms  were  then  common,  some  of  which  will  be  examined 
shortly.  When,  according  to  legend,  the  Gauls  overran  most  of  Rome  in 
390  BC,  the  cackling  of  the  geese  around  the  temple  on  the  Capitol 
alerted  the  defenders  against  what  would  otherwise  have  been  a  sur- 
prise attack,  and  so  saved  them  from  defeat.  In  return  the  Romans  built 
a  shrine  to  Moneta,  the  goddess  of  warning,  or  of  advice.  It  is  from 
Moneta  that  we  derive  both  'money'  and  'mint'.  Among  many  other 
Latin  influences  on  our  terms  related  to  coinage  are  'copper',  'brass' 
and  '£.  s.  d.  '  as  well  as  the  terms  'pecuniary'  and  'expenditure'  already 
described.  The  copper  deposits  of  Cyprus  were  worked  up  in  consider- 
able quantities  in  Italy  by  the  early  days  of  Roman  expansion,  so  that 
the  island  gave  its  name  to  the  product.  The  skilled  metallurgists  of 
Brindisi  (Brundisium)  in  southern  Italy  who  combined  the  copper  with 
other  metals  similarly  gave  their  name  to  'bronze'. 

It  has  been  well  said  that  'the  final  legacy  of  the  Hellenistic  world  to 
the  Roman  Empire  was  an  extensive  bronze  coinage  .  .  .  the  Roman 
army  was  paid  in  bronze  until  the  middle  of  the  second  century  bc' 
(Burnett  1980).  The  'libra'  became  our  '£',  the  French  'livre'  and  the 
modern  Italian  'lira'.  That 'd  should  mean  'penny'  is  not  immediately 
obvious,  but  came  from  one  of  the  most  famous  Roman  silver  coins,  the 
'denarius',  and  this  origin  has  been  acknowledged  for  two  thousand 
years,  until  the  new  penny  or  'p'  finally  replaced  it  in  1971.  The 
abbreviation  V  is  still  a  little  more  complicated.  Linguistically  and 
originally  a  'schilling'  simply  meant  a  piece  cut  off  a  ring  or  bar  of 
precious  metal.  But  the  Romans  produced  a  number  of  coins  more 
valuable  than  the  denarius  among  which  were  the  'sestertius'  and  the 
'solidus'.  The  'solidus',  officially  issued  in  a  limited  number  of  Roman 
mints,  meant  that  it  was  of  'solid'  or  pure  gold  or  silver,  in  contrast  to 
the  'mancus'  or  'manque'  coinages  which  were  impure,  substandard  or 
imitations.  It  is  generally  accepted  that  among  the  many  different  types, 
the  'solidus',  worth  one-twentieth  of  a  pound  of  silver  and  equivalent  to 
a  dozen  pennies,  became  engrafted  in  the  Anglo-Saxon  and  Norman 
mind  with  the  original  primitive  meaning  of  'shilling'  to  form  the 
middle  of  the  famous  old  £.s.d.  notation. 

The  Romans  were  rather  late  in  adopting  the  types  of  well-struck 
coinages  which  the  Greeks  had  developed  and  had  demonstrated  so 
clearly  on  their  very  doorsteps  in  their  colonies  in  Sicily  and  southern 
Italy.  Syracuse,  Catania,  Taormina  in  Sicily;  Rhegium,  Croton  and 
Tarentum  on  the  southern  coast  of  Italy;  Massilia  (Marseilles)  and 
other  Greek  colonies  -  all  these  used  and  produced  a  variety  of 
constantly  improved  coinages,  as  did  Carthage,  with  which  Rome  was 



in  conflict.  The  inferior  quality  of  the  Romans'  early  coinage  fittingly 
reflected  their  as  yet  undeveloped  state,  economically  and  politically. 
Heavy  and  cumbrous  currency  bars,  the  aes  signatum,  were  still  in 
common  use  in  Rome  in  275  BC,  and  although  some  crude  cast  silver  coins 
may  have  been  issued  there  as  early  as  300  BC,  silver  coins  did  not  receive  a 
wide  circulation  until  the  middle  of  the  third  century  BC.  For  lower 
denominations  the  most  common  early  Roman  coin  was  the  aes  grave,  a 
heavy  bronze  coin  that  was  also  cast  rather  than  struck.  The  traditional 
date  of  269  BC  is  confirmed  authoritatively  by  Mattingly  for  Rome's  first 
regular  struck  silver  coinage  (Mattingly  1960) . 

As  in  Greece,  a  large  number  of  Roman  towns  issued  their  own 
currencies,  at  least  until  the  ending  of  the  Carthaginian  wars  with  the  final 
defeat  of  Hannibal  at  the  battle  of  Zama  in  202  BC.  Since  the  payment  of 
troops  was  the  most  urgent  (but  not  the  only)  cause  for  minting,  these  wars 
led  to  an  immense  increase  in  coinage  all  around  the  western  basin  of  the 
Mediterranean  and  Carthaginian  north  Africa.  Even  so,  the  vast  quantities 
of  bronze  and  silver  coins  were  insufficient  to  meet  the  demands  of  war, 
and  an  emergency  short-lived  issue  of  gold  coins  was  made.  It  appears  that 
for  a  short  time  Rome  may  have  altogether  run  out  of  money,  and  was 
forced  to  exist  on  credit  alone.  Furthermore  towards  the  later  stages  of  the 
war  the  quality  of  coinage,  both  in  purity  and  weight,  was  noticeably 
reduced.  After  the  end  of  the  Punic  Wars  as  a  result  of  the  unsatisfactory 
state  of  the  coinage  a  thorough  reform  of  currency  had  to  be  undertaken, 
another  early  example  of  the  pendular  swing  between  quality  and 

This  was  made  easier  by  centralizing  the  minting  of  silver  in  Rome  itself 
from  which  a  new  uniform  silver  coinage  of  denarii  was  issued  with 
quinarii  and  sestertii  as  useful  subdivisions.  Provincial  town  mints  were 
demoted  by  being  allowed  to  issue  bronze  coins  only.  Although  this 
debasement  was  merely  a  minor  matter  compared  with  what  was  to  reach 
almost  astronomical  proportions  in  the  age  of  Diocletian,  nevertheless  it 
was  an  indication  that  the  Romans  did  not  quite  possess  the  integrity  of 
the  Greeks  when  it  came  to  maintaining  the  values  of  silver.  Rome  needed 
to  coin  vast  quantities  of  silver  to  maintain  her  growing  armies.  However, 
after  these  emergency  debasements  the  quality  of  the  reformed  silver 
coinage  was  generally  maintained  for  over  two  hundred  years.  To  support 
just  one  legion  cost  Rome  around  1,500,000  denarii  a  year,  so  that  the  main 
reason  for  the  regular  annual  issue  of  silver  denarii  was  simply  to  pay  the 
army.  In  addition  the  vast  population  of  Rome,  which  multiplied  to  a  peak 
of  about  a  million,  became  increasingly  dependent  on  doles  of  free  corn 
and  other  gratuities.  The  famous  public  buildings  of  Rome  were  similarly 
paid  for  by  minting  the  necessary  coinage,  though  some  work  was  free. 



The  temptation  towards  debasement  though  in  the  main  held  at  bay 
for  a  couple  of  centuries  in  Rome  itself,  was  strongly  felt  in  those 
peripheral  areas  which  retained  their  rights  of  coinage.  Thus  in  the  later 
Hellenistic  empire  the  Ptolemaic  regime  in  53  BC  fell  prey  to  temptation 
by  issuing  grossly  debased  coinage.  In  this  case  it  was  not  so  much  the 
direct  effects  of  war  but  rather  the  huge  bribes  that  Ptolemy  XII  paid  to 
regain  his  throne  that  brought  about  a  debasement  that  became  a 
permanent  feature  of  Egyptian  currency  in  the  period  of  the  Roman 
empire.  As  an  example  of  the  financial  importance  to  Rome  of  the 
tribute  from  subject  tribes,  the  Carthaginians,  after  their  defeat,  agreed 
in  201  BC  to  pay  to  Rome  fifty  annual  instalments  which  came  in  all  to 
10,000  talents.  A  vast  total  of  slave  labour,  continually  reinforced  by 
captured  soldiers,  was  employed  not  only  in  agriculture  but  also  in  the 
various  mines  within  the  Roman  empire  to  supply  her  needs  for  iron  for 
military  and  general  purposes;  and  for  copper,  silver  and  gold  for 
coinage  purposes,  these  latter  purposes  also  being  initially  determined 
by  the  requirements  of  the  armies.  Over  100,000  slaves  were  taken  from 
Gaul  alone  to  work  in  Italy,  while  large  numbers  were  retained  in  Gaul 
to  work  in  her  mines.  The  output  of  iron  from  the  Montagne  Noire 
region  alone  is  estimated  at  some  thousands  of  tons  per  year  during  the 
latter  part  of  the  first  century  AD.  These  mines  also  produced 
considerable  quantities  of  lead,  silver  and  copper.  Even  greater  supplies 
of  silver  came  from  Spain,  especially  from  its  famous  Rio  Tinto  area 
where  recent  archaeological  digs  have  revealed  the  vast  extent  of  Roman 
workings  (G.  D.  B.  Jones  1980,  146f£). 

Roman  currency  circulated  not  only  over  its  own  vast  domains  but 
also  was  found  beyond  the  imperial  boundaries.  Britain,  for  example, 
though  outside  the  empire  until  the  conquest  of  a  large  part  of  the 
country  by  Claudius  in  AD  40,  had  already  become  familiar  with  Roman 
coins  and  especially  with  Celtic  coinages  of  Roman  type  for  at  least  a 
century  earlier.  When  Julius  Caesar  made  his  two  raids  in  55  and  54  BC 
a  number  of  Celtic  tribes  in  southern  and  eastern  Britain  were  already 
producing  coins  from  their  independent  mints  and  these,  together  with 
Roman  coins,  circulated  alongside  the  crude  sword-blade  currencies 
that  Caesar  disdained.  Julius  Caesar  was  no  longer  content  to  adorn  his 
coins  with  ancestral  heads  but  preferred  to  portray  his  own  likeness. 
Indeed,  nowhere  has  the  propaganda  value  of  coins  been  used  to  greater 
effect  than  in  Rome.  Brutus,  following  Caesar,  not  only  had  his  own 
profile  on  the  obverse,  but  advertised  on  the  reverse  the  gruesome  events 
which  led  to  his  brief  rule:  a  cap  of  freedom  flanked  by  two  daggers. 
Nero,  as  actor  and  fiddler,  faithfully  reflected  his  ego  in  his  coinage, 
while  the  official  adoption  of  Christianity  by  Constantine,  when,  in 



Grant's  vivid  phrase,  'Galilee  conquered  Rome',  began  the  long  series 
of  crosses  that  remain  on  British  coins  to  this  day,  e.g.  the  Llantrisant 
mint  mark  on  the  £1  coin. 

Despite  the  slogan  SPQR  {Senatus  Populusque  Romanus),  which 
paid  lip-service  to  the  authority  of  the  Senate,  in  actual  fact  the  issue, 
design  and  amount  of  coinage  became  the  personal  prerogative  of  the 
Roman  emperors  themselves.  For  over  500  years  the  coins  of  Rome 
publicly  portrayed  the  events,  hopes,  ambitions,  lives  and  lies,  of  its 
rulers.  The  enormous  but  previously  neglected  importance  of  such 
coinage  as  a  historical  record,  is  powerfully  captured  by  Professor 
Grant's  stimulating  account  of  Roman  History  from  Coins  (1968). 
Grant  clearly  demonstrates  that  'we  need  to  study  the  coinage  as  well  as 
the  literature  before  we  can  attempt  a  political  history  of  the  Romans'; 
and  the  same  applies  with  equal  if  not  greater  force  with  regard  to  its 
economic  history.  So  enthusiastic  is  Grant's  assessment  of  the 
propaganda  value  of  such  money  that  he  even  goes  as  far  as  saying  that, 
in  certain  cases  at  least,  'the  primary  function  of  the  coins  is  to  record 
the  messages  which  the  emperor  and  his  advisers  desired  to  commend 
to  the  populations  of  the  empire'  (Grant  1968,  17,  69).  If  this  particular 
aspect  were  generalized  it  would  surely  portray  an  exaggerated  view 
and  one  that  the  economist  must  dispute.  Yet  it  does  illustrate  with 
typical  clarity  the  tremendous  interest  aroused  by  coins  in  ancient 
times,  even  in  the  most  advanced  peoples. 

Coins  were  clearly  far  more  than  merely  media  of  exchange.  But  then 
one  of  the  constant  themes  that  emerge  from  this  study  of  money, 
whether  in  primitive,  archaic  or  modern  times,  is  just  that:  money  is 
always  much  more  than  simply  a  method  of  exchanging  goods  and 
services.  Thus  economists  who  ignore  the  non-economic  aspects  of 
money  are  as  guilty  as  those  numismatists  and  'primitivists'  who 
minimize  its  economic  bases.  In  fairness  to  Professor  Grant,  it  must  be 
added  that  despite  the  views  given  in  the  quotations  above,  he  provides 
many  telling  examples  of  the  widespread  distribution  of  Roman  coins 
as  a  result  of  trade  in  such  articles  as  amber,  ivory,  silk,  incense  and 
pepper,  and  refers  to  Mortimer  Wheeler's  vivid  description  of  these  as 
'the  five  main-springs  of  Roman  long-range  trade'  (Grant  1968,  85). 
Similarly,  he  shows  that  the  'local'  issues  of  coinage  cannot  be 
dismissed  as  of  local  consequence  only  or  of  narrowly  limited 
circulation,  but  in  contrast  were  commonly  widely  dispersed  by  the 
needs  of  trade. 

Given  the  dominance  of  coinage,  what  role  was  then  left  for  banking? 
In  sum  one  might  say  that  although  coins  overshadowed  banks  in 
monetary  importance,  the  rise  of  Rome  and  the  vast  size  of  its  economy 



gave  considerable  scope  for  the  development  of  banking  also,  although 
banks  remain  of  secondary  importance  throughout  the  whole  period  of 
the  Roman  empire.  In  no  way  was  there  a  sense  that  coinage  was  a 
necessary  preliminary  to  the  development  of  banking.  Our  modern 
experience  of  this  kind  of  'inevitability'  must  not  lead  us  to  look  for 
parallels  where  they  patently  do  not  exist.  We  know,  and  are  still 
learning,  an  immense  amount  about  Roman  coinage,  because  of  the 
huge  reservoir  of  hundreds  of  thousands  of  such  coins  still  existing  in 
private  collections  and  museums.  In  comparison  our  knowledge  of 
Roman  banking  and  credit  is  minimal.  Coins  are  durable;  paper  is 
perishable,  so  that  though  much  nearer  in  time,  the  Roman  bankers 
have  provided  us  with  much  less  concrete  evidence  of  their  activities 
than  is  given  by  the  far  older  Babylonian  bankers  with  their  abundance 
of  financial  accounts  recorded  as  it  happened  for  all  time  in  tablets  of 
clay.  Admittedly,  coinage  was  dominant  in  Rome;  but  its  dominance 
over  banking  may  well  have  been  exaggerated  by  its  greater  durability. 
Keith  Hopkins,  an  expert  on  Roman  trade,  neatly  summarized  the 
situation  thus:  'We  know  almost  nothing  of  credit  in  the  Roman  world; 
that  does  not  mean  that  credit  played  a  negligible  role,  but  rather  that 
we  cannot  estimate  its  importance'  (1980,  106). 

However,  despite  the  advanced  development  of  private  banking, 
partly  in  conscious  imitation  of  that  of  the  Greeks  and  the  Egyptians, 
no  centralized  state  giro  system  developed  in  the  Roman  empire  to 
compare  with  that  which  had  been  the  case  in  Egypt.  The  Romans 
either  failed  or  did  not  attempt  to  establish  a  unified  state  banking 
system,  despite  evidence  that  Roman  statesmen  were  well  aware  of  the 
advantages  that  Egypt  had  gained  from  its  giro  and  from  its  royal  state 
banking  system.  'It  is  interesting',  says  Rostovtzeff,  'that  the  idea  of  a 
central  state  bank  survived',  and  had  it  received  more  support  it  might 
well  have  become  'a  credit  institution  for  the  whole  of  the  Roman 
Empire'  (Rostovtzeff  1941,  1288).  Rome  and  Constantinople  became 
the  main  inheritors  of  the  banking  wisdom  of  the  ancient  world,  which 
by  means  of  the  Roman  conquest  had  become  'knitted  together  into  one 
economic  unit  by  the  establishment  of  lasting  and  uninterrupted  social 
and  economic  relations  between  the  united  West  and  the  equally  united 
East'  (Rostovtzeff  1941,  109).  However  the  Babylonians  had  developed 
their  banking  to  a  sophisticated  degree,  since  their  banks  had  also  to 
carry  out  the  monetary  functions  of  coinage,  because  they  lived  long 
before  that  invention.  The  Ptolemaic  Egyptians  segregated  their  limited 
coinage  system  from  their  state  banking  system.  The  Romans,  however, 
preferred  coins  for  the  many  kinds  of  services  which  both  ancient  (and 
modern)  banks  normally  provided.  Nevertheless  Rome's  banks  very 



quickly  outgrew  their  early  confinement  to  the  Capitol,  and  soon 
spread  their  tables  and  booths  along  the  sides  of  the  Forum. 

During  the  second  century  BC  these  booths  were  replaced  by  a  fine 
basilica  where,  according  to  Breasted, 

the  new  wealthy  class  met  to  transact  financial  business  and  large  com- 
panies were  formed  for  the  collection  of  taxes  and  for  taking  government 
contracts  to  build  roads  and  bridges  or  to  erect  public  buildings.  Shares  in 
such  companies  were  daily  sold,  and  a  business  like  that  of  a  modern  stock 
exchange  developed  in  the  Forum.  (1920,  630) 

This  possibly  extreme  'modernistic'  view  is  confirmed  in  part,  though 
not  on  the  whole,  when  account  is  taken  both  of  the  immense  size  of 
private  fortunes  which  large  numbers  of  the  richest  Roman  citizens  had 
amassed  and  which  required  daily  recourse  to  bankers,  and  of  the 
extent  to  which  the  'publicans'  or  the  tax-farming  estate  agents,  so 
often  linked  with  sinners  in  the  Bible,  directly  carried  out  banking  func- 
tions. Thus  a  recent,  and  on  balance  'primitivist',  authority  on  the 
Roman  economy  shows  that  'the  scale  of  the  largest  private  fortunes  at 
Rome  was  extremely  high'  and  gave  examples  of  two  such  fortunate 
men  who  were  worth  around  400  million  sesterces,  or  in  real  terms 
between  three-quarters  and  one  and  a  half  million  metric  tons  of  wheat. 
He  then  compares  this  with  the  largest  private  fortunes  in  mid- 
sixteenth-  and  mid-seventeenth-century  England,  which  at  a  real  value 
of  between  21,000  and  42,000  tons  would  appear  to  make  the  wealthiest 
Romans  some  thirty  or  forty  times  richer  than  their  English  counterparts 
(Duncan-Jones  1982,  4-5). 

Roman  bankers  knew  their  place:  and  Roman  banks,  despite  their 
growing  importance  were  supplementary  to  the  dominant  mints.  By 
controlling  the  mints  personally,  the  emperors  saw  no  need  to  stimulate 
banking:  a  state  system  of  banking  failed  to  appear  and  private  banking 
remained  functionally  inferior  to  coinage.  Thus  the  Greeks,  although  they 
were  not  strictly  speaking  the  inventors  of  money  or  of  banking,  had 
developed  both  sides  of  money,  the  anonymous  and  the  written,  to  a  high 
pitch  of  efficiency.  However,  because  the  invention  of  coinage  enabled  the 
financial  aspects  of  political  and  economic  life  to  make  such  considerable 
advances  and  be  so  adaptable,  there  was  no  pressure  to  improve  banking 
practices  to  anything  like  the  same  degree.  With  us  today,  coinage  is  very 
much  a  minor  monetary  matter  (though  not  as  unimportant  as  is 
dismissively  implied  by  its  almost  total  neglect  by  most  modern 
economists) ,  while  banking  because  of  its  general  excellence  is  paramount. 
In  the  Roman  empire  the  situation  was  almost  exactly  the  reverse. 



Roman  finance,  Augustus  to  Aurelian,  14  bc-ad  275 

Although  the  history  of  the  Roman  republic  and  empire,  west  and  east, 
spans  some  twenty-two  centuries,  from  753  BC  to  AD  1453,  the  impor- 
tant section,  so  far  as  our  financial  study  is  concerned,  comprises  barely 
a  third  of  that  immense  period,  from  around  300  BC  to  the  fall  of  the 
western  empire  early  in  the  fifth  century  AD.  The  great  expansionary 
stage  was  almost  completed  in  or  shortly  after  the  Augustan  age  (say  by 
AD  138,  if  we  include  the  conquests  of  Trajan  and  Hadrian,  though 
some  later  emperors  added  considerable  new  territories).  Rome  seems 
thereafter  to  have  adopted  a  defensive  policy  of  containment.  As  the 
contemporary  Roman  historian  Appian  described  it:  'Possessing  the 
best  part  of  the  earth  and  sea  the  emperors  reject  rule  over  poverty- 
stricken  and  profitless  tribes  of  barbarians.'  Therein  lies  the  heart  of  the 
matter  so  far  as  the  financial  watershed  in  Roman  history  is  concerned. 
Once  expansion  over  the  richer  lands  ceased  to  yield  its  customary 
handsome  rewards  the  Roman  empire  found  itself  inevitably  thrown 
more  and  more  upon  the  further  utilization  of  its  existing  resources.  In 
a  macro-economic  sense,  diminishing  returns  began  to  exhibit  their 
universal  and,  at  first,  hidden  consequences. 

In  political  and  military  terms,  'by  giving  up  the  task  of  expansion 
she  can  be  said  to  have  sown  the  seeds  of  her  own  destruction,  by  those 
she  had  failed  to  conquer',  the  eager  barbarians  on  her  borders  (Mann 
1979,  183).  In  coinage  terms,  that  is  in  the  fundamental  economic  terms 
of  those  days,  expansion  meant  a  flood  of  precious  metals,  with  slaves 
to  work  the  mines,  in  addition  to  the  tribute  exacted,  which  was 
customarily  also  paid  largely  in  the  precious  metals.  Thus  in  addition  to 
the  14,000  talents  extorted  from  Carthage  in  the  first  and  second  Punic 
Wars  (10,000,  as  noted  above,  after  the  second  war),  Sidon  paid  Rome 
15,000  talents  between  189  and  177  BC,  Greece  and  Macedon  paid  some 
12,000  talents  between  201  and  167  BC,  while  Spain  paid  over  3,300 
talents  in  the  ten  years  following  the  Roman  conquest  in  206  BC,  besides 
giving  up  her  enormously  more  valuable  gold  and  silver  mines,  which 
like  all  such  mines  became  the  property  of  the  Roman  state,  and  later, 
the  personal  property  of  the  emperor.  Even  so,  as  we  have  seen, 
occasionally  the  influx  of  new  bullion  supplies  failed  to  keep  pace  with 
demand.  These  occasions  changed  from  being  the  exception  into  being 
the  rule  from  the  end  of  the  second  century  AD  onward. 

During  one  of  Rome's  greatest  periods  of  expansion,  between  157  BC 
and  about  50  BC  the  active  circulation  of  Roman  coinage,  mostly  silver, 
multiplied  by  ten  times,  but  this  was  accompanied  by  an  increased 
amount  and  geographical  extent  of  trading  which,  with  other  factors, 



such  as  the  holding  of  greater  cash  reserves  in  the  expanding  cash-based 
banks  and  in  the  Roman  treasury,  held  back  the  inflation  which  would 
otherwise  have  followed  such  a  flood  of  new  money.  As  Keith  Hopkins 
has  perceptively  observed:  'The  steep  rise  in  money  supply  had  little 
impact  on  prices  because  of  the  substantial  rise  in  the  volume  of  trade 
in  an  expanded  area  and  partly  because  money  percolated  into  a 
myriad  of  transactions  which  had  previously  been  embedded  in  the 
subsistence  economy'  (1980,  110).  However,  all  these  factors  began 
cumulatively  to  work  the  other  way  as  soon  as  the  era  of  expansion  was 
over,  culminating  in  rampant  inflation,  rigid  rationing,  a  substantial 
return  to  payments  in  kind  rather  than  in  money,  gross  debasement  of 
the  coinage,  and  inevitably  in  the  West,  the  end  of  empire  itself. 

Since  coinage  was  the  direct  responsibility  of  the  central  authorities, 
with  gold  and  silver  coins  being  the  direct,  personal  responsibility  of 
the  emperor,  any  financial  pressures  on  them  were  immediately 
reflected  in  their  coinage  -  mostly,  in  the  later  stages  of  the  empire,  by 
progressive  debasement.  The  debasement  occurred  initially  in  the 
bronze  coinages,  which  virtually  became  tokens,  and  then  affected 
mainly  silver,  which  had  become  by  far  the  most  important  metal  for 
coinage.  Gold  remained  as  far  as  was  possible,  undebased  or  suffered  to 
a  far  smaller  degree  than  did  the  silver  and  bronze  coinages.  The 
Romans  were  as  proud  of  the  high  quality  of  their  aureus  and,  at  least 
after  Constantine,  their  gold  solidus,  as  Athens  had  been  of  its  silver 
'owls',  and  with  almost  as  good  reason.  As  Mattingly  has  demon- 
strated, 'a  gold  coinage  was  clearly  necessary  for  the  Empire,  both  for 
the  sake  of  prestige  and  for  the  practical  necessity  of  dealing  with  the 
expanding  trade  and  rising  prices'  (1960,  121). 

Augustus  (30  BC  to  AD  14)  carried  out  a  thorough  reform  of  the 
coinage  system,  issuing  a  new  gold  aureus  at  42  to  the  pound  weight, 
and  a  half-sized  gold  quinareus  at  84  to  the  pound  as  well  as  a  large 
silver  denarius,  also  at  84  to  the  pound,  with  25  denarii  being  worth  1 
aureus  or  100  sesterces.  Both  gold  and  silver  coins  were  practically  pure. 
In  addition,  there  was  a  less  carefully  produced  subsidiary  coinage  of 
both  brass  and  copper,  e.g.  a  one-ounce  brass  sestertius  and  a  copper  as 
and  quarter  as.  Financial  accounting,  both  public  and  private,  was 
carried  out  in  terms  of  the  denarius  and  the  sestertius,  which  was  one- 
quarter  of  a  denarius.  In  the  long-lived  Augustan  system,  the  gold 
aureus  and  the  silver  denarius  were  the  main,  standard  coins  of  the 
Roman  bimetallist  system  which,  by  and  large,  functioned  effectively 
for  two  centuries.  Augustus  also  laid  the  basis  of  a  new  taxation  system 
which  similarly  endured,  but  with  increasing  strain,  for  almost  as  long. 
It  was  not  until  the  flood  of  foreign  tribute  was  exhausted  that  the 



state's  financial  inadequacies  necessitated  drastic  changes  in  fiscal 
policy.  Taxes  were  unchanged  for  generations  if  not  for  centuries. 
Augustus  had  however  managed  to  establish  three  new  taxes:  first,  a  1 
per  cent  general  sales  tax;  secondly  the  tributum  soli,  which  was  a  1  per 
cent  tax  on  the  assessed  value  of  land;  and  thirdly  the  tributum  capitis, 
a  flat-rate  poll  tax  on  'adults'  aged  from  12  or  14  to  65. 

With  occasional  adjustments,  supplemented  by  frequent  recourse  to 
requisitioning,  these  remained  adequate  until  the  increased  pace  of 
inflation  from  the  middle  of  the  third  century  AD  caused  a  complete 
breakdown  in  Rome's  financial  affairs.  Eventually  Diocletian  managed 
to  find  a  temporary  and  partial  solution  to  the  problem.  Nero  (ad 
54-68)  reduced  the  gold  weight  of  the  aureus  to  one-forty-fifth  of  a 
pound  and  also  began  the  process  of  debasing  the  denarius  by 
moderately  and  therefore  unobtrusively  reducing  its  silver  content  to  90 
per  cent.  Thereafter,  despite  a  few  desperate  attempts  to  restore  the 
Augustan  standard,  debasement  became  gradually  the  accepted  method 
by  which  emperors  sought  to  make  ends  meet.  Even  so,  the  degree  of 
inflation  remained  moderate  until  the  latter  half  of  the  third  century  AD. 
The  contrast  between  the  relatively  mild  inflation  based  on  a  relatively 
sound  and  successful  bimetallist  currency  during  the  first  two  centuries 
AD  and  the  chaotic  monetary  conditions  of  the  two  following  centuries 
is  most  marked,  and  together  they  highlight  the  importance  of  the  reign 
of  Diocletian  and  his  immediate  precursors  and  followers  as  a 
watershed  between  these  widely  different  eras. 

Public  finances,  crumbling  under  the  mounting  weight  of  welfare 
payments  and  subsidies,  appear  to  have  been  the  Achilles'  heel  of 
ancient,  as  perhaps  of  modern,  civilizations.  Themistocles  was  not 
immortal,  and  the  Athenians  could  not  rely  on  always  having  someone 
to  persuade  them  to  save  their  money  from  immediate  consumption.  'It 
is  perfectly  clear,'  says  Professor  Michell,  'that  the  chance  of  currying 
favour  with  the  irresponsible  masses  by  offering  them  the  means  of 
plundering  the  rich  was  in  Greece,  as  it  is  today,  the  best  policy  for  the 
demagogues'  (1957,  393).  There  can  be  little  doubt,  too,  that  it  was 
these  financial  pressures,  to  which  such  generous  subsidies  added  their 
considerable  weight,  that  'should  in  fact  be  branded  as,  in  all 
probability,  the  real  cause  of  the  destruction  of  the  noblest  of  all  states 
known  to  history'  (Andreades  1933,  363).  As  with  Greek  public  finance, 
so  later  was  it  in  Rome. 

Only  the  superior  administrative  and  legal  systems  of  the  Romans 
plus  the  fiscal  innovations  of  Diocletian  delayed  the  inevitable  decay  for 
so  long,  for  the  scale  of  demands  made  on  the  public  purse  was  far 
higher  in  Rome  than  in  Greece.  The  richer  Romans  were  also  able  to 



avoid  high  taxation  more  easily  than  was  the  case  in  Greece,  and  as  we 
have  seen,  the  differences  between  rich  and  poor  were  also  far  greater  in 
Rome.  Taxes  were  constantly  inadequate,  and  difficulties  with  such 
increasingly  inadequate,  belatedly  adjusted,  visible  taxes  made  Rome 
rely  all  the  more  on  the  easy,  ready-to-hand,  hidden  taxation  in  the 
form  of  currency  debasement.  Short-lived,  fitful  reforms  failed  to 
reverse  the  secular  downward  slide. 

The  financial  pressures  through  the  wearing  out  of  coins,  shipwrecks, 
drains  of  money  in  exchange  for  the  luxuries  of  the  east,  gifts  to 
German  barbarians,  the  growth  in  urban  populations,  the  decline  in  the 
output  and  perhaps  also  in  the  physical  productivity  of  agriculture,  the 
working  out  of  the  richest  mines,  and  above  all  the  'bread  and  circuses' 
policies  deemed  essential  to  keep  minimum  standards  of  orderly  city 
life,  all  these  worked  together  cumulatively  to  tempt  imperial  Rome 
into  perpetual  debasement,  interspersed  with  occasional  reforms  which 
were  soon  doomed  to  failure.  As  well  as  supplying  free  or  cheap  bread 
and  wine,  imperial  'liberalities'  or  'congiaria'  in  the  form  of  cash  doles 
were  distributed  from  time  to  time,  notably  by  Trajan  (ad  98-117)  and 
even  more  so  by  Hadrian  (117-138)  and  his  successors.  What  emperor 
and  citizens  had  originally  seen  as  a  rare  privilege  had  become  a 
customary  expectation  from  the  beginning  of  the  second  century  AD. 
They  'constituted  a  serious  burden  on  the  exchequer  and  contributed 
their  share  towards  State  bankruptcy'  (Mattingly  1960,  149). 

Even  when  the  urban  poor  in  Rome  alone  (the  population  of  which 
was  a  million  or  more)  were  provided  with  food  in  kind,  most  of  this 
was  necessarily  imported,  and,  though  some  was  requisitioned,  much 
of  it  was  purchased  with  cash.  Rome  needed  to  import  at  least  150,000 
tons  of  grain  every  year,  most  of  the  imports  coming  from  North 
Africa.  The  children  of  the  poor  received  'alimenta',  bread  rations  or 
the  equivalent  for  their  support.  As  many  as  200,000  persons  in  Rome 
itself,  without  counting  similar  subsidization  known  to  be  common 
elsewhere,  received  distributions  of  wheat  free  of  charge.  When  to  these 
burdens  is  added  the  immense  cost  of  a  large  army  and  a  growing 
bureaucracy  (even  if  the  numbers  of  the  latter  were  in  fact  small  in 
relation  to  the  huge  populations  they  administered),  one  can  easily  see 
how  the  strains  on  the  public  budget  grew  to  breaking  point,  all  the 
more  so  when  these  strains  were  channelled  unequally  on  to  the  coinage 
system.  After  Augustus'  reform  of  the  monetary  and  fiscal  system  at  the 
beginning  of  the  first  century,  the  silver  coinage  remained  pure,  or 
nearly  so,  for  the  rest  of  that  century.  By  AD  250,  however,  the  silver 
content  of  the  coins  was  down  to  40  per  cent. 

Thereafter   the   pace   of  inflation   and   of  debasement  rapidly 



accelerated,  and  by  AD  270  the  silver  content  had  fallen  to  4  per  cent  or 
less.  Since  there  was  obviously  no  general  index  of  prices  with  which  to 
measure  the  force  of  inflation,  we  are  thrown  back  on  using  prices  of 
important  commodities  such  as  wheat,  pork  and  slaves  plus  the  wealth 
of  information  contained  in  Diocletian's  famous  'Edict  of  Prices'.  While 
the  decline  in  output  was  a  partial  cause  in  the  phenomenal  rise  of 
wheat  prices,  there  can  be  no  doubt  that  monetary  inflation  was  by  far 
the  more  important.  A  recent  expert  quantification  of  the  pace  of 
inflation  summarizes  the  position  thus: 

Overall,  the  evidence  suggests  that  prices  in  the  mid-third  century  were 
about  three  times  the  level  of  first-century  prices  but  that  mid-Diocletianic 
prices  were  50-70  times  more  than  those  of  the  first  century.  This  argues 
relatively  slow  price-change  up  to  the  time  of  Gallienus,  followed  by  very 
rapid  price  increases  from  about  260  onwards.  (Duncan-Jones  1982,  375) 

Gallienus'  relatively  short  reign  (260-8)  marked  the  climax  of 
physical  debasement,  with  the  so-called  'silver'  denarius  containing 
only  about  4  per  cent  silver.  In  addition  his  mints  produced  a  flood  of 
copper  'billons'  hardly  more  than  flakes  of  metal  impressed  on  one  side 
only.  Such  grossly  inferior  coinage  was  refused  by  the  banks.  The  limits 
of  that  form  of  debasement,  which  had  begun  moderately  with  Nero 
200  hundred  years  earlier,  had  been  reached.  As  long  as  coins  of 
reasonable  quality  had  to  be  produced,  so  long  was  inflation,  given  the 
practical  absence  of  credit  inflation  in  the  cash-based  Graeco-Roman 
system,  limited  by  the  slow  and  laborious  process  of  hand-produced 
coinage.  Gallienus  threw  any  pretence  of  quality  to  the  winds,  but  his 
temporary  success  in  securing  funds  soon  led  to  a  marked  increase  in 
the  pace  of  inflation  and  a  temporary  breakdown  of  the  banking 

The  next  emperor  of  note  in  this  connection  was  Aurelian  (270—5) 
who,  faced  with  the  chaotic  condition  of  the  coinage  following 
Gallienus,  was  forced  to  carry  out  a  most  peculiar  'reform'  of  the 
coinage.  He  issued  two  new  coins,  the  main  issue  marked  'XX. I',  the 
precise  meaning  of  which  remains  a  matter  of  dispute  among 
numismatists.  The  economic  importance  of  Aurelian's  coinage  however 
comes  from  the  fact  that  he  retariffed  or  revalued  the  coinage  to  fit  the 
current  rapidly  increased  level  of  prices.  In  general  he  raised  the 
nominal  value  of  his  coins  by  2Vi  times  the  previous  value  of  similar 
coins.  In  this  way  the  Roman  state  (or  any  other  state)  could  keep  one 
jump  ahead  of  the  inflation  inevitably  caused  thereby.  This  new 
principle  of  coinage  revaluation  released  the  brake  upon  inflation 
previously  exerted  by  the  limited  means  of  hand-struck  minting,  for  this 



new  and  subtle  form  of  'debasement'  masquerading  as  'reform'  could 
be  applied  at  a  stroke  to  the  whole  of  the  existing  as  well  as  to  the 
currently  produced  coinage.  Aurelian  had  invented  a  method  of 
inflationary  finance  which  continued  to  be  used  by  hard-pressed 
emperors  for  over  one  hundred  years  and  is  one  of  the  main  reasons  for 
the  contrasting  types  of  inflation  in  the  first  and  second  main  periods  in 
the  financial  history  of  imperial  Rome.  Inflation  took  off;  and  money- 
based  trade  came  to  a  virtual  standstill.  Though  Aurelian  was  murdered 
in  275,  such  remained  the  position  facing  Diocletian  when  he  became 
emperor  in  AD  284. 

Modern  believers  in  the  disinflationary  magic  of  a  gold  currency, 
whether  followers  of  Jacques  Rueff  or  the  pro-gold  lobby  of  the  US 
Congress,  should  note  that  Aurelian  proved  conclusively  that  a 
'reformed'  currency  is  perfectly  compatible  with  an  increase  rather  than 
a  decrease  in  inflation.  Those  who,  erroneously,  hold  that  an  increase  in 
the  metallic  quality  of  money  is  either  a  necessary  or  a  sufficient  step  to 
remove  inflation,  would  probably  be  as  puzzled  over  Aurelian's  financial 
adventures  as  was  that  most  famous  historian  of  the  Decline  and  Fall  of 
the  Roman  Empire,  Gibbon  himself.  While  it  would  appear  to  be 
irrefutable  that  the  vast  tributes  which  Aurelian  brought  to  Rome  from 
his  eastern  conquest  (discounting  the  15,000  lbs  weight  of  gold  that  he 
donated  to  Rome's  temple  of  the  Sun)  formed  the  main  source  of  the 
issues  of  reformed  coinages  from  his  mints,  Gibbon  was  puzzled  as  to 
why  the  issue  of  new  coins  should  have  led  to  an  insurrection  led  by  the 
moneyers  themselves.  Gibbon  quotes  a  private  letter  from  Aurelian: 
'The  workmen  of  the  mint,  at  the  instigation  of  Felicissimus,  a  slave  to 
whom  I  had  intrusted  an  employment  in  the  finances,  have  risen  in 
rebellion.  They  are  at  length  suppressed,  but  seven  thousand  of  my 
soldiers  have  been  slain  in  the  contest.'  Rarely  can  a  reform  of  the 
coinage  have  been  so  costly  in  real  terms  —  nor  as  it  turned  out  in  long- 
term  inflationary  costs  either.  However,  Gibbon,  who  obviously 
considered  Aurelian  to  have  been  a  misjudged  monarch,  plaintively 
reminds  us  that  'the  years  abandoned  to  public  disorders  exceeded  the 
months  allotted  to  the  martial  reign  of  Aurelian,  [so]  we  must  confess 
that  a  few  short  intervals  of  peace  were  insufficient  for  the  arduous 
work  of  reformation'.  Given  the  inflationary  consequences  of  Gibbon's 
favourite,  one  wonders  at  his  conclusion  that  'since  the  foundation  of 
Rome  no  general  had  more  nobly  deserved  a  triumph  than  Aurelian' 
(1788, 1,  300-2).  However  as  far  as  the  Roman  economy  was  concerned 
Aurelian's  contribution  was  more  of  a  disaster  than  a  triumph.  It  was 
largely  because  of  the  nature  of  his  'reform'  that  the  rate  of  inflation 
was  enabled  to  rise  far  above  what  had  previously  been  possible,  even  by 



the  irresponsible  Gallienus.  After  Aurelian,  for  two  centuries  inflation 
became  rampant  throughout  the  Roman  empire. 

Diocletian  and  the  world's  first  budget,  284-305 

In  the  short  space  of  four  decades  (244-84),  between  the  assassination 
of  Gordian  and  the  accession  of  Diocletian  inclusive,  Rome  had 
endured  no  less  than  fifty-seven  emperors.  The  state  was  in  a  complete 
mess,  administratively,  economically  and  financially.  The  strong  rule  of 
Diocletian,  (284-305),  followed  fairly  shortly  thereafter  by  the  equally 
strong  Constantine  (306—37,  if  we  date  the  beginning  of  his  power  in  the 
West  from  the  time  he  was  declared  emperor  by  his  own  troops  in  York), 
recreated  sufficient  order  and  stability  in  government  and,  in  a  peculiar 
fashion,  in  finance  also,  to  enable  the  empire  to  endure  more  or  less 
intact  for  a  further  century.  The  logistical  foundation  of  the  army  and 
of  the  administration  was  made  secure  through  Diocletian's  rationing 
and  budgetary  system,  while  Constantine  succeeded  in  supplying  the 
richer  citizens  as  well  as  the  two  main  spending  units,  the  army  and 
administration,  with  a  pure  and  adequate  supply  of  gold  coins.  Thus 
rampant  inflation  in  prices,  accommodated  by  and  generated  by  a  flood 
of  inferior  coinage  proceeded  apace,  afflicting  the  majority  of  the  rela- 
tively poor,  while  the  rich  and  powerful  found  a  way  of  avoiding  the 
disadvantages  of  the  runaway  inflation.  It  was  Diocletian  who  first 
taught  Rome  how  to  live  with  such  inflation,  and  the  success  of  his  new 
system  was  confirmed  and  strengthened  still  further  by  Constantine.  In 
retrospect  there  can  be  no  doubt  that  together  they  saved  the  empire  in 
the  West  until  the  fifth  century,  while  Constantine  set  the  basis  for 
maintaining  the  strong  financial  influence  of  Constantinople  on  the 
coinage  of  the  shrinking  eastern  sections  of  the  empire  until  the  middle 
of  the  fifteenth  century.  The  political,  economic  and  financial  chaos  of 
the  third  quarter  of  the  third  century  was  replaced  by  an  enduring  two- 
tier  system,  whereby  the  persistent  inflation  was  overcome  in  those  key 
sectors  where  governmental  finance  and  administration  were  con- 
cerned, even  if  over  the  unshielded  sectors  of  the  economy  inflation 
continued  unabated. 

The  weaknesses  of  the  empire  from  260  to  284  were  so  grave  that 
only  a  complete  reformation  stood  any  chance  of  success.  Diocletian's 
prescribed  cure  was  comprehensively  planned.  After  an  initial  period  of 
detailed  and  painstaking  assessment  of  the  political  and  economic  facts 
his  ideas  were  then  rigorously  pushed  through  to  their  logical 
conclusions.  His  comprehensive,  and  well-integrated  package  of  reform 
was  based  on  the  following  five  features:  first,  a  reformed  currency; 



secondly,  a  prices  and  incomes  policy;  thirdly,  a  demographic  and 
economic  census  coupled  with  an  annual  budget;  fourthly,  a  systematic 
adoption  of  taxation  and  payment  in  kind;  and  finally  -  a  feature 
without  which  all  other  aspects  would  have  failed  -  an  administrative 
reconstruction  of  the  army,  civil  service  and  regional  government. 
Although  these  five  features  may  be  separated  for  analysis,  the  success 
or  failure  of  each  directly  affected  the  other  features.  Together  they 
made  an  integrated  policy  which  developed  gradually  into  a  formula  for 
successful  and  stable  government. 

Diocletian's  main  efforts  in  currency  reform  took  place  in  AD  295.  He 
realized  that  confidence  in  coinage  (i.e.  in  money)  had  been  almost 
completely  lost  despite  Valerian's  short-lived  'reforms'.  He  therefore 
struck  five  new  coins:  a  full-weight,  pure  gold  aureus,  at  sixty  to  the 
pound  weight,  and  an  almost  pure  silver  coin  at  ninety-six  to  the 
pound.  In  addition  there  were  three  coins,  covering  large,  medium  and 
small  sizes,  all  made  of  silvered  bronze.  In  retrospect  it  is  clear  (from 
letters  and  declarations  made  by  Diocletian)  that  he  expected  his 
currency  reforms  to  eradicate  or  at  least  to  slow  down  the  rapid 
inflation  which  had  been  eroding  the  basis  of  economic  life  throughout 
the  Roman  empire.  After  all,  his  coinage  system  was  very  similar  in 
quality  to  that  of  Nero:  but  in  contrast  prices  under  Diocletian 
remained  a  hundred  times  higher  than  in  Nero's  reign.  To  Diocletian's 
surprise,  anger,  and  consternation,  however,  prices  continued  their 
upward  surge.  The  momentum  of  price  rises,  built  up  to  an  accelerated 
degree  during  the  previous  forty  years  and  supported  by  a  flood  of  poor 
quality  coinage,  was  far  too  strong  to  be  halted  simply  by  minting  a 
supply  of  new  coins  which  in  total  was  small  in  relation  to  the  vast 
supply  already  in  the  hands  of  the  people.  Not  that,  in  themselves,  the 
new  coins  were  inconsiderable  in  amount,  for,  as  Mattingly  shows,  'it  is 
highly  probable  that  Diocletian's  eastern  victories  placed  large  new 
stocks  of  gold  and  silver  at  his  disposal'  (1960,  250).  This  was  another 
example  of  the  integrated  nature  of  his  policies.  Nevertheless,  for  a 
number  of  years  the  selective  process  inevitable  whenever  good  and  bad 
coins  circulate  together  had  been  at  work,  whereby  the  good  coins  were 
retained,  or  parted  with  only  when  absolutely  necessary,  as  in 
particular,  for  the  payment  of  taxes,  while  the  velocity  of  circulation  of 
the  bad  coins  used  as  far  as  possible  everywhere  else,  was  speeded  up. 
No  doubt,  Diocletian's  new  coins  received  this  same  selective  treatment. 
Diocletian  was  therefore  driven  to  attempt  to  impose  direct  controls  on 
all  prices. 

The  Edict  of  Prices  of  301  is  among  the  most  important  economic 
documents  -  or  rather,  series  of  documents  -  of  the  Roman  empire. 



Although  issued  1,700  years  ago,  we  are  still  in  the  process  of  discovering 
more  information  about  these  famous  edicts.  In  1970  an  earthquake  at 
Aezani  in  central  Turkey,  in  destroying  a  mosque,  gave  easier  access  to 
previously  existing  buildings  in  and  around  that  site,  which  included 
some  of  the  best-preserved  Roman  ruins  in  Turkey.  Amid  the  ruins  of  the 
modern  mosque,  the  medieval  Christian  church  and  the  ancient  temple 
of  Zeus,  which  occupied  the  same  general  site,  were  found  Roman  coins 
of  the  fourth  century  and  also  a  fairly  comprehensive  and  very  well- 
preserved  copy  of  Diocletian's  Price  Edict,  comprising  8V2  of  the  original 
fourteen  sections.  The  uncovered  coins  also  cleared  up  another 
archaeological  mystery,  namely  the  precise  appearance  of  the  statue  of 
Zeus  after  which  the  vast  marble  temple  was  named  -  another  example 
of  the  more  general  historical  evidence  provided  by  coinage.  It  is  perhaps 
appropriate  that  our  knowledge  of  the  worst  inflationary  period  of  the 
ancient  world  should  thus  accidentally  come  to  light  at  a  time  of  the 
most  widespread  inflation  yet  suffered  in  the  modern  world.  Even  so  our 
knowledge  of  the  edict  is  still  not  complete  despite  fragments  having 
been  found  in  over  thirty  different  cities;  and  though  these  are  mostly  in 
the  eastern  half  of  the  empire,  there  is  no  doubt  that  the  code  of  prices 
was  to  apply  equally  throughout  the  whole  empire.  Indeed  one  of  the 
criticisms  subsequently  levied  against  the  code,  and  a  reason  for  its 
failure,  is  that  it  made  no  allowance  for  regional  differences  in  prices, 
when  such  differences  were  very  considerable. 

It  is  of  some  importance  to  realize  that  the  edict  was  in  effect  both  a 
prices  and  incomes  policy,  for  as  well  as  giving  the  official  prices  for  an 
incredibly  long  list  of  goods,  the  edict  also  gave  the  rates  for  services  and 
personal  wages  and  salaries,  for  slaves,  agricultural  labourers,  public 
workers,  from  architects  to  stonemasons,  the  various  grades  of  the  civil 
service  and  the  ranks  of  the  army  -  all  these  were  clearly  stipulated  in 
very  considerable  detail.  Although  this  mass  of  detail  was  based  on 
painstaking  and  laborious  study,  the  edict  nevertheless  represented 
official  wishful  thinking  -  the  prices  that  were  listed  were  thought  fair 
and  reasonable  at  the  time  (ad  301)  but  were  not  the  market  prices  that 
actually  obtained.  Indeed  there  is  little  doubt  that  'profiteers'  were 
singled  out  for  blame,  for  naturally  in  such  inflationary  conditions,  they 
flourished  at  the  expense  of  honest  traders.  However  the  fact  that 
inflation  was  not  caused  by  profiteers  soon  became  obvious,  for  there  is 
considerable  evidence  not  only  that  goods  were  driven  off  the  market 
when  traders  held  on  to  their  stock  rather  than  exchange  at  the  official 
prices,  which  were  too  low  to  enable  them  to  earn  a  living,  but  that  the 
prices  at  which  trading  was  actually  carried  out  were  in  fact  far  higher 
than  those  stipulated  in  the  edicts. 


The  maximum  prices  for  goods  and  services  laid  down  in  the  edicts 
are,  in  retrospect,  extremely  important  in  giving  a  picture  of  the  relative 
values  of  goods  and  services,  even  if  the  actual  prices  given  were  rather 
low  at  the  time  they  were  issued  and  even  if  they  were  very  soon 
overtaken  in  practice.  Richard  Duncan  Jones  gives  a  number  of 
examples  to  show  how  the  inflation  of  prices  continued  despite 
Diocletian's  reform  of  the  currency  and  despite  his  Edict  on  Prices. 
Thus  a  papyrus  of  335  shows  wheat  prices  sixty-three  times  higher  than 
listed  in  the  edict.  Given  the  very  limited  success  of  his  monetary  policy 
and  also  of  his  prices  and  incomes  policy,  Diocletian  was  driven  to  rely 
very  much  more  on  isolating  the  more  important  sectors  of  the 
economy  from  the  harmful  and  unreliable  influences  of  the  market. 

The  third  aspect  of  his  policy  was,  as  noted,  to  produce  an  annual 
budget  on  the  basis  of  a  complete  economic  and  demographic  census  of 
the  empire  —  a  sort  of  Roman  Domesday  Book,  but  a  much  more 
thorough  and  advanced  survey  than  that  of  King  William,  for  Norman 
England  was  far  more  primitive  than  ancient  Rome.  Nevertheless  the 
comparison  brings  out  the  flavour  of  the  detailed  researches  which 
underlay  the  most  famous  of  all  Diocletian's  innovations  -  the  world's 
first  budget.  We  have  already  noted  that  the  sound  Augustan  system  of 
taxation  allowed  room,  whenever  the  state's  revenue  fell  short  of  its 
expenditure,  for  supplementing  its  revenue  by  various  means.  Nero  and 
others  had  tried  confiscating  the  property  of  rich  citizens  after  serving 
trumped  up  charges  against  them.  However  the  main  method  of 
supplementation  was  simply  by  the  emperor  or  Senate  authorizing  the 
prefect  or  general  concerned  to  requisition  whatever  was  necessary  for 
his  purpose,  for  example  for  paying  for  public  works  or  for  supplying 
arms  or  uniforms  for  the  army. 

Until  the  time  of  Diocletian  such  requisitioning  was  done  on  a 
piecemeal  basis,  as  and  when  necessary.  It  was  a  wasteful  process,  for 
very  often  the  central  authorities  in  Rome  or  elsewhere  would  not  be  in 
a  position  to  relieve  the  shortages  existing  in  one  place  with  a  surplus 
existing  -  but  unknown  to  the  central  authorities  -  elsewhere,  since  it 
was  natural  for  those  in  charge  of  resources,  whether  the  civil  service  or 
the  army,  to  keep  quiet  about  their  surpluses  and  to  complain  loudly  of 
their  deficits.  Furthermore  there  was  no  foreknowledge  of  the  likely 
balances  of  surplus  or  deficit  since  planning  and  requisitioning  were 
both  carried  out  independently  and  on  an  uncoordinated  time  basis. 
Diocletian  changed  all  that.  His  census  gave  him  a  view  of  the 
reasonable  output  of  the  various  regions  in  relation  to  the  needs  of  the 
army  and  civil  service  and  of  the  public  works  required  in  that  region. 
As  far  as  possible  each  region  was  to  supply  its  own  needs,  though  few 



could  be  self-sufficient,  while  special  allowances  were  made  for  large 
towns  like  Rome  which  could  obviously  never  attain  such  a  balance. 
Each  September  the  civil  and  military  administrators  had  to  submit 
their  estimated  revenues  and  expenditures  (in  real  as  well  as  in 
monetary  terms,  as  we  shall  note  below)  to  the  emperor.  The  central 
authorities  could  then,  by  comparing  one  regional  set  of  accounts  with 
the  other,  see  where  savings  could  be  made  by  offsetting  estimated 
surpluses  with  estimated  deficits.  September  was  the  obvious  month  on 
which  to  base  the  annual  budget,  since  knowledge  of  the  year's  harvest 
would  first  become  available  then,  and  after  all  agriculture  was  by  far 
the  most  important  sector  of  the  economy,  so  that  fluctuations  in 
agricultural  output  had  a  preponderant  importance  in  the  total  budget. 
Keynes  once  remarked  -  significantly  in  connection  with  unbalanced 
budgets  -  that  there  was  nothing  sacred  in  the  time  it  took  the  earth  to 
go  around  the  sun:  but  to  Diocletian  and  subsequently  to  most  societies 
throughout  time,  the  dominance  of  agriculture  has  inevitably  caused 
most  accounts,  whether  public  or  private,  to  be  based  on  the  results  of 
the  annual  harvest.  It  was  Diocletian's  genius  which  first  recognized  the 
importance  of  bringing  the  affairs  of  state  into  line  with  the  regular 
order  of  the  universe. 

Diocletian's  fiscal  policy  would  not  have  been  successful  without  the 
fourth  arm  of  policy,  namely  the  implementation  of  a  system  of  receipts 
and  payments  in  kind  rather  than  simply  in  money.  The  instability  of 
money  prices  and  the  habit  of  hoarding  good  coins  meant  on  the  one 
hand  that  the  supply  of  good  money  was  insufficient  to  pay  the 
increasing  taxes  necessary  to  the  Diocletianic  system,  and  on  the  other 
hand  that  allocations  from  central  to  local  authorities,  if  based  on 
money  alone,  would  have  been  far  too  unreliable  and  in  general 
inefficient.  This  would  have  led  inescapably  to  an  unworkable  increase 
in  requisitioning  in  the  old,  sporadic  uncoordinated  and  highly  wasteful 
fashion.  Consequently  the  regularization  of  requisitioning  based  on  a 
rigid  rationing  of  resources  became  a  vital  feature  of  Diocletian's 
reform.  Taxes  need  not  be  paid  in  gold  (though  some  continued  to  be): 
they  would  be  accepted  in  kind,  and  taxpayers  were  encouraged  or 
forced  to  make  their  payments  in  kind.  Similarly  allocations  were 
distributed  largely  in  kind.  In  this  way  the  vital  services  of  the  army  and 
civil  service  were  secured,  for  on  these  rested  the  whole  of  the  economic 
and  political  structure  of  the  empire.  In  this  way  the  most  important 
sectors  of  the  economy,  from  the  official  viewpoint  at  least,  were 
safeguarded  from  the  rigours  of  inflation.  This  did  not  mean  the  end  of 
a  market  economy  -  far  from  it:  but  it  did  mean  that  over  a  large  part  of 
the  economy  where  the  civil  service  and  army  had  direct  influence, 



money  became  mainly  used  for  accounting  purposes  rather  than  also  as 
a  medium  of  exchange  and  a  means  of  payment  of  wages,  taxes  etc.  Of 
course  the  release  of  coinage  from  these  official  duties  in  a  significant 
part  of  the  economy,  mostly  wholesale  or  large-scale  in  nature,  actually 
increased  the  supplies  of  money  available  for  spending  in  the  still  largely 
uncontrolled  part  of  the  economy,  which  was  mostly  but  not  solely, 
retail.  It  is  little  to  be  wondered  at  then,  that  despite  the  economic 
stability  attained  by  Diocletian's  system  of  budgeting  and  direct 
rationing,  prices  continued  their  vigorous  inflationary  progress 
unabated  -  or  if  anything,  at  an  enhanced  pace.  The  other  side  of  the 
coin  is  that  although,  in  the  circumstances  obtaining  under  Diocletian, 
an  annual  budget  had  to  be  combined  with  rationing,  under  different 
circumstances,  for  example  once  a  sufficiently  plentiful  supply  of 
reliable  coinage  had  become  available,  the  budget  could  function  with 
greater  financial  freedom  -  a  position  approached  by  Constantine  and 
later  emperors,  at  least  until  weaknesses  elsewhere  wrecked  the  whole 

The  fifth  and  final  feature  of  Diocletian's  integrated  policy  requiring 
some  attention  is  that  concerning  his  general  administrative  reforms  of 
the  army,  civil  service  and  provincial  government.  It  was  the  peace  and 
security  provided  by  these  reforms  that  was  basic  to  the  recovery  of  trade 
and  the  functioning  of  the  rest  of  Diocletian's  reforms.  First,  the  size  of 
the  army  was  considerably  increased,  and  its  structure  reorganized. 
Morale  was  improved  when  the  requisitioning  system  was  regularized, 
which  guaranteed  the  soldiers  in  real  terms  their  standard  of  living  and, 
importantly,  the  differentials  which  had  been  squeezed  in  the  inflationary 
vices  of  the  previous  half-century.  In  order  to  carry  out  his  detailed 
census  and  his  rationing  and  budgetary  policies  it  was  essential  for 
Diocletian  also  to  increase  the  size  of  the  civil  service:  according  to  some 
estimates  its  size  was  almost  doubled  in  the  twenty-one  years  before  his 
abdication.  Certainly  complaints  about  the  burden  of  taxes  and  the  new 
methods  laid  down  for  payment  increased  considerably  during  his  reign 
and  for  many  years  subsequently.  As  far  as  the  reform  of  regional 
government  is  concerned,  one  of  the  previous  difficulties  was  the  great 
variation  in  the  size,  wealth  and  output  of  the  various  regions,  some  of 
which  were  far  too  large  for  efficient  administration,  particularly  given 
the  degree  of  detailed  assessments  required  in  the  new  fiscal  system  which 
Diocletian's  civil  and  military  services  were  introducing.  Consequently 
Diocletian  reorganized  regional  government,  almost  doubling  the 
number  of  provinces,  and  subdividing  Italy  itself  into  provinces.  In  order 
to  reduce  the  wanton  destruction  suffered  in  the  peripheral  areas  from 
barbarian  attacks  Diocletian  relocated  the  army  in  strategic  positions  in 



the  frontier  areas.  Security,  trade,  fiscal  and  administrative  reform  thus 
went  hand  in  hand.  Perhaps  only  in  the  two  related  features  of  his 
currency  reform  and  his  prices  and  incomes  policy  did  Diocletian  fail,  or 
at  least  gain  only  partial  and  temporary  success  —  but  these  very  failures 
caused  him  to  reinforce  the  undoubtedly  strong  and  lasting  successes 
achieved  by  his  administrative  improvements  and,  above  all,  by  the  fiscal 
reforms  for  which  he  is  mainly,  and  with  justice,  remembered.  Diocletian 
became  one  of  the  very  few  emperors  ever  to  abdicate  voluntarily  when  in 
305  he  retired  to  farm  and  build  a  palace  in  Spalato  (Split).  It  is  said  that 
when  pressed  by  Galerius  to  return  to  rule  rather  than  merely  'to  grow 
cabbages'  Diocletian  replied:  'Obviously,  he  hasn't  seen  my  cabbages.' 
Inflation  always  enhances  land  values  and  places  cabbages  and  kings  into 
healthy  perspective. 

Finance  from  Constantine  to  the  Fall  of  Rome 

Shortly  following  Diocletian's  abdication  in  305  Constantine  took  over 
an  initially  disputed  control  of  much  of  the  western  empire  in  306,  and 
eventually  established  his  authority  throughout  the  empire  after  exten- 
sive and  successful  campaigns  in  Thrace,  Byzantium  and  Egypt.  The 
first  effect  of  these  campaigns  was  to  extend  the  twenty-one  years  of  rel- 
ative stability  achieved  by  Diocletian  for  a  further  thirty-one  years.  It 
was  during  his  long  reign  that  Christianity,  from  having  been  a  perse- 
cuted minority  religion  for  nearly  three  hundred  years,  was  made  the 
official  faith  in  313.  One  might  at  first  think  that  his  eastern  conquests 
and  his  conversion  were  not  of  much  relevance  to  financial  develop- 
ments, but  a  little  reflection  will  show  that  in  fact  both  these  events, 
together  with  the  encouragement  to  trade  given  by  the  long  years  of 
peace  and  stable  government,  were  directly  related  to  the  success  of  his 
financial  and  economic  policies. 

Just  like  Diocletian,  Constantine's  first  major  decision  in  the 
financial  field  was  to  reform  the  currency  -  or  at  least  the  higher-value 
coinage.  The  small  copper  and  grossly  debased  silver  currency,  by  that 
time  known  disparagingly  as  pecunia,  appeared  to  have  degenerated 
beyond  recall;  but  good-quality  silver  and  pure  gold  coinage,  known 
respectively  as  argentum  and  aureum  still  commanded  sufficient  public 
loyalty  to  be  worth  rescuing.  Early  in  Constantine's  reign  he  issued  a 
coin  that  is  in  some  ways  the  most  famous  single  coin  in  history  -  the 
gold  solidus,  which  was  to  be  produced,  at  a  rate  of  72  to  the  pound 
weight,  for  some  seven  hundred  years.  No  other  coin  has  remained  pure 
and  unchanged  in  weight  for  anything  like  so  long  a  period,  for  when 
Rome  fell  it  continued  to  be  issued  from  the  Byzantine  capital,  which 


had  been  rebuilt  in  Roman  splendour  by  Constantine.  The  choice  of  72 
solidi  to  the  pound  gave  convenient  subdivisions,  of  a  gold  semissis 
worth  half  a  solidus,  and  a  gold  tremissis  worth  one-third  of  a  solidus. 
Some  experts,  such  as  Blunt  and  Jones  state  that  the  solidus  was  'not  in 
the  full  sense  of  the  word  a  coin'.  They  argue  this  because  it  was 
primarily  issued  for  the  convenience  of  the  imperial  treasury,  and  also 
because  its  value  in  terms  of  non-gold  subsidiary  coinage  was  not  fixed 
but  fluctuated  from  day  to  day  as  the  inflation  of  the  subsidiary  coinage 
proceeded  at  a  fast  but  erratic  pace.  This  argument  appears  however  to 
do  less  than  full  justice  to  the  solidus.  It  was  the  other  coins  that  in 
effect  were  not  coins  in  the  full  sense  since  the  public  had  lost  a  great 
deal  of  faith  in  them  and  yet  had  to  make  use  of  them,  in  the  absence  of 
good-quality,  small-value  coins.  That  these  exchanged  with  that 
supreme  coin,  the  solidus,  at  a  fluctuating  rate  is  not  to  be  wondered  at; 
nor  is  the  fact  that  the  banks  and  money-changers  would  quote  their 
varying  exchange  rates  for  the  solidus,  day  by  day.  In  recent  years  we 
have  become  used  to  the  'floating'  pound,  which  is  no  less  a  pound  by 
reason  of  the  fluctuations  in  its  value  as  against  other  currencies.  If  one 
thinks  of  the  vast  Roman  empire  as  having  horizontal  divisions  between 
its  main  and  its  subsidiary  currencies  (instead  of  the  vertical  divisions 
between  countries  which  give  rise  to  the  floating  exchange  rates  today) 
then  the  acceptance  of  the  solidus  as  a  coin  in  every  sense  of  the  word  is 
more  readily  seen.  The  purity  of  the  solidus  was  maintained  by  the 
state's  insistence  on  full-weight  coins  in  payment  of  taxes,  even  though 
it  equally  insisted  on  enforcing  acceptance  without  weighing  for  the 
private  sector  -  an  order  with  which  the  private  sector  complied  all  the 
more  easily  because  from  Constantine's  day  onward,  the  imperial  issues 
were  kept  meticulously  up  to  full  weight  and  purity. 

Supplies  and  precious  metals  in  sufficient  quantity  to  meet  the 
demands  of  the  state  and  those  of  trade  came  from  a  number  of  sources. 
First  the  eastern  conquests  of  Constantine  yielded  a  profitable  surplus  of 
tribute.  Secondly  Constantine  established  a  number  of  new  taxes  payable 
strictly  in  gold  or  silver.  Thirdly  his  agents  operated  compulsory  purchase 
orders  at  reasonable  but  fixed  prices  for  gold.  Fourthly  what  was  the  most 
important  source  of  all  came  as  a  direct  result  of  the  official  conversion  to 
Christianity,  which  allowed  Constantine  to  confiscate  the  enormous 
treasures  amassed  over  the  centuries  in  the  numerous  pagan  temples 
throughout  the  empire.  The  result  of  this  religious  revolution  was  far 
greater  but  in  some  ways  similar  to  the  financial  effects  of  the  dissolution 
of  the  monasteries  in  sixteenth-century  England.1  Indeed  given  this 
massive  new  gold  source,  the  three  new  types  of  gold  coins  began  to 

1  See  pp.  194-7. 



become  so  plentiful  as  to  make  it  possible  for  the  state  to  begin  to  relax 
the  strict  rationing  inflicted  by  Diocletian  as  more  and  more  of  the 
economy  became  serviced  by  coinage  of  good  quality.  Diocletian's  gold 
coinage  had  been  rather  too  small  to  have  a  lasting  effect.  Armed  with  the 
gold  of  the  pagan  temples,  Constantine  succeeded  where  Diocletian  had 
failed.  Although,  like  Diocletian,  Constantine  also  issued  a  reformed 
silver  currency,  his  degree  of  success  in  silver  fell  considerably  short 
compared  with  his  famous  solidi.  The  pecunia  of  debased  copper  and 
silver-washed  copper  still  existed  in  considerable  volume. 

Consequently  despite  the  high  quality  of  coins  at  the  top  of  the  range, 
inflation  was  far  from  cured.  In  effect,  the  very  considerable  supply  of 
new  good  money,  supplemented  rather  than  supplanted  the  existing 
supply  and  so  in  a  perverse  way  added  to  the  inflationary  pressures  during 
and  after  Constantine's  reign.  In  this  connection  it  is  important  to  note 
that  the  imperial  mints,  both  during  and  after  Constantine,  continued  to 
issue  vast  quantities  of  the  old,  grossly  debased  coins.  Diocletian's  edict 
stipulated  that  a  pound  of  gold  was  worth  50,000  denarii.  By  307  gold 
was  worth  100,000  denarii;  by  324  it  was  worth  300,000.  In  some  parts  of 
the  empire  the  inflation  was  even  more  astronomical.  In  these 
circumstances  the  prestige  and  the  value  of  the  solidus  continued  to  soar. 
Possibly  the  record  rate  of  exchange  between  the  debased  denarii  and  the 
solidus  is  the  figure  of  30  million  to  one  reached  in  mid-fourth-century 
Egypt,  at  which  reckoning,  and  discounting  the  premium  attached  to  the 
coin,  a  pound  of  gold  was  worth  2,120,000,000  denarii.  Thus  inflation 
had  brought  the  once  proud  silver  denarius  to  dust. 

Given  the  fact  that  the  influential  sections  of  the  community  -  the 
emperor,  landowning  senators,  the  civil  service  and  army  -  could  be 
content  with  their  appreciating  land  and  gold  currency  holdings,  the 
empire  struggled  on.  But  the  mass  of  the  population,  despite  the  degree  to 
which  they  were  saved  by  their  direct  dependence  on  agriculture,  could 
not  escape  the  disadvantages  of  inflation;  and  though  the  pace  of  inflation 
was  considerably  reduced  in  the  last  quarter  of  the  fourth  century  and  the 
beginning  of  the  fifth,  the  damage  had  been  done.  Thus  the  barbarian 
pressures  were  more  easily  able  to  achieve  increasing  success. 
Economically  it  matters  little  whether  we  date  the  end  of  the  western 
empire  with  the  fall  of  Rome  to  the  Visigoths  in  410  or  extend  it  to  476 
when  the  last  Roman  emperor,  Romulus  Augustulus  was  deposed  in 
favour  of  Odoacer  the  Barbarian.  Of  course,  Constantinople  continued  in 
some  form  for  a  further  millennium,  and,  for  most  of  that  long  period,  so 
did  the  solidus;  a  rather  empty  if  glittering  symbol  of  the  old  imperial 



The  nature  of  Graeco-Roman  monetary  expansion 

From  a  few  city-states  in  the  north-east  corner  of  the  Mediterranean, 
Greek  and  Roman  monetary  systems  spread  to  cover  almost  the  whole 
of  the  non-Chinese  civilized  world.  Contrary  to  the  situation  in  our 
modern  world  where  the  advanced  economies  comprise  only  a  quarter 
of  the  world's  total  population,  it  is  probable  that  it  was  the  most  civi- 
lized regions  of  the  world  that  were  not  only  the  most  prosperous  but 
also  the  most  populous  in  the  ancient  world.  In  other  words  the  new 
monetary  systems  had  a  greater  significance  than  might  at  first  be  sup- 
posed in  terms  of  the  total  numbers  of  people  directly  influenced.  It  was 
the  simple,  concrete,  anonymous  nature  of  the  new  invention  of  coinage 
which  assisted  its  ready  assimilation  into  the  economic  life  of  millions 
of  new  users  in  the  expanding  Hellenistic  and  Roman  empires.  For  the 
first  time  in  history  'money'  mainly  meant  'coins':  all  the  more  so  since 
in  Graeco-Roman  times  coins  performed  not  merely  their  modern  func- 
tion of  supplying  the  small  change  of  retail  trade,  but  covered  in 
addition  almost  all  the  range  of  payments  now  performed  by  banknotes 
and  cheques.  Coins  followed  -  indeed  accompanied  -  the  sword; 
payment  for  troops  and  for  their  large  armies  of  camp-followers  was 
generally  the  initial  cause  of  minting.  Only  the  best  was  good  enough 
for  an  all-conquering  army,  and  what  was  good  enough  for  the  army, 
even  if  at  first  accepted  through  compulsion,  was  soon  universally 
accepted  by  everyone  with  alacrity.  Although  armies  could  always  take, 
or  'requisition',  whatever  they  wanted,  payment  in  good  coinage  was  a 
better  way  of  getting  eager  co-operation.  Consequently  trade  and,  with 
it,  coinage,  as  the  most  convenient  and  most  readily  acceptable  method 
of  financing  trade,  expanded  in  step  with  the  armies  of  Alexander  and 
Julius  Caesar. 

If  the  spread  of  Greek,  Macedonian,  Hellenistic  and  Roman  money 
had  had  to  depend  solely  on  trade,  the  process  would  have  been  far 
slower  and  far  more  limited  in  extent:  it  was  military  conquest  which 
forced  the  pace  and  extent  of  change.  That  is  not  to  say,  however,  that 
trade  was  unimportant  in  causing  the  adoption  of  Greek  and  Roman 
monetary  systems  based  on  coinage:  on  the  contrary,  trade  expanded 
enormously  as  all  roads  and  a  large  proportion  of  shipping,  led  to 
Athens,  Pella  or  especially  Rome.  Priority  in  causation  may  well  have 
been  military  conquest,  and  the  maintenance  of  the  army  and  of  the 
administration  was  always  of  considerable  importance  in  the  total 
economy:  but  once  the  sword  had  initiated  a  novel  or  an  expanded  need 
for  coinage,  commercial  trade  took  over,  added  substantially  to  the 
military  needs  and  so  became  confirmed  in  its  generally  preponderant 



role.  Despite  the  fact  that  the  state,  mainly  through  having  to  support  a 
large  army  and  administrative  machine,  always  loomed  large  in  the 
economic  life  of  Hellenistic  and  Roman  civilization,  nevertheless  the 
market  economy  and  the  price  system  furnished  the  basis  of  a  largely 
private-enterprise  system,  with  a  high  degree  of  specialization  of 
labour,  dependent  on  an  intricate  network  of  trading  in  everyday 
requirements  as  well  as  in  luxuries,  on  a  scale  extensive  enough  to 
guarantee  that  the  large  urban  populations  were  adequately  fed  and 
clothed,  while  enabling  considerable  numbers  of  its  richer  citizens  to 
enjoy  a  most  enviable  standard  of  living,  at  a  level  which  few  would  be 
able  to  attain  until  relatively  recent  times.  It  is  not  a  question  therefore 
of  either  the  army  or  trade  being  responsible  for  the  establishment  and 
maintenance  of  the  new  monetary  systems  based  on  coinage.  Both  had 
their  interconnected  roles  to  play,  with  the  sword  leading  the  way. 
Without  the  security  established  by  the  sword,  seen  especially  in  the 
four  long  centuries  of  the  'Pax  Romana',  trade  would  not  have  been  able 
to  have  basked  in  the  peace  and  goodwill  necessary  for  its  un- 
precedented growth  and  extent.  Coinage  enormously  facilitated  and 
clearly  symbolized  the  degree  of  imperial  success  in  war  and  peace,  in 
conquest  and  trade. 

Since  the  new  money  was  the  product  of  the  sword  the  pace  of 
monetary  expansion  was  naturally  greatest  during  the  last  few  decades 
of  the  fourth  century  BC  when  the  pace  of  Hellenistic  advance  was  at  its 
height.  As  we  have  seen,  the  Persians  learned  about  coinage  when  they 
captured  the  Lydian  King  Croesus.  Their  attempts  to  conquer  Greece 
were  thwarted  when  Athens,  Sparta,  Corinth  and  the  rest  managed  to 
turn  from  fighting  each  other  to  fighting  the  common  enemy.  Philip  IPs 
financial,  economic  and  military  preparations  to  advance  against  Persia 
helped  Alexander  towards  his  astonishing  successes  which  led  to  the 
most  rapid  extension  of  any  single  monetary  system  in  world  history  - 
until  the  advent  of  the  euro  in  2002.  As  we  have  seen,  the  expansion  was 
more  than  simply  geographical,  for  vast  treasuries  of  precious  metals 
which  had  previously  been  unavailable  for  monetary  uses  were  coined 
for  immediate  use  for  military  and  more  general  economic  purposes. 
Although  the  easternmost  sections  of  Alexander's  empire  were  lost  by 
the  time  its  Hellenistic  remains  were  consolidated  within  the  Roman 
empire,  Julius  Caesar  and  his  followers  extended  the  uniform  Graeco- 
Roman  monetary  system  over  all  of  Gaul  and  most  of  Britain,  though 
here  the  sword  followed  and  more  strongly  confirmed  various  imitative 
coinage  systems  which  had  already  to  some  extent  been  built  up  partly 
by  trade  and  partly  by  aggression  by  a  number  of  warring  Celtic  tribes. 
Thus  in  the  thousand  years  between  600  BC  and  AD  400  the  whole  of  the 



civilized  world  had  become  accustomed  to  coinage  as  the  basis  of  its 
monetary  systems.  At  one  time  or  other,  between  1,500  and  2,000  mints 
were  busy  turning  out  the  coins  required  in  the  non-Chinese  and  non- 
Indian  areas  of  the  civilized  world. 

However,  when  the  impetus  of  growth  gave  way  to  the  stagnation  of 
defence  the  nature  of  monetary  expansion  gradually  began  to  change 
also,  from  real  growth  to  spurious,  inflationary  expansion.  The  Roman 
desire  for  disciplined  uniformity,  though  long  successful,  eventually 
succumbed  to  the  conflicting  need  to  delegate  administrative  and 
military  decision-making  (and  therefore  coin-making)  to  a  number  of 
provincial  regions  and  to  the  peripheral  areas  where  fighting  to  defend 
the  vast  imperial  boundaries  was  endemic.  Many  mints  producing  from 
a  limited  number  of  official  imperial  dies  enabled  uniformity  to  coexist 
with  decentralization,  though  with  increasing  difficulty.  Currently, 
expert  numismatists  have  been  unable  to  decide  in  a  significant  number 
of  instances  whether  the  coinage  dies  in  a  number  of  provincial  centres 
were  truly  'official'  or  just  very  good  imitations,  undiscovered  or 
possibly  condoned  by  the  local  administration  who  would  often  gain 
power,  prestige  and  of  course  literally  money  thereby.  Numismatically 
the  problem  of  official  versus  unofficial  dies  is  a  matter  of  considerable 
importance,  although  from  the  economic  point  of  view  the  real  concern 
is  the  degree  of  acceptability  of  the  coins.  The  very  fact  of  imitation 
indicated  that  the  demand  for  money  locally  exceeded  the  official 
supply,  a  gap  which  the  counterfeiter  exploited  directly  for  his  own 
interest  and  indirectly  and  more  importantly  for  influencing  the 
economy  as  a  whole;  for  good  if  trade  was  otherwise  being  inhibited, 
for  evil  if  the  increased  unofficial  supply  simply  fed  an  existing  general 
inflationary  oversupply  of  money.  The  better  the  imitation,  the  wider 
was  the  actual  or  potential  extent  of  the  currency  of  the  counterfeit 
coinage.  Furthermore,  as  official  debasement  proceeded  apace,  so  the 
metallic  costs  and  the  workmanship  costs  of  counterfeiting  were 
reduced,  encouraging  the  unofficial  supply  to  be  more  readily  expanded 
and  so  multiplying  the  force  of  the  officially-induced  inflation. 

Although  the  Romans  had  frequently  reduced  the  size  of  gold  coins, 
i.e.  increased  the  number  coined  from  a  given  weight  and  moreover  tried 
to  pass  off  the  reduced  weights  at  their  former  values,  they  generally 
avoided  debasing  their  gold  in  the  sense  of  alloying  gold  with  less 
precious  metals;  and  from  Constantine  onwards  they  re-established  the 
purity  and  stability  of  their  gold  coinage.  They  reserved  mixed-metal 
debasement  for  their  silver  coins,  reducing  many  to  mere  silver-washed 
bronze  or  copper  coins,  with  the  thinnest  of  silver  coatings.  However,  an 
economy   cannot   live   by    gold   alone.    The   destruction  through 



debasement  and  inflation  of  the  monetary  media  in  which  most  retail 
trade  was  necessarily  conducted,  and  which  involved  by  far  the  greatest 
number  of  transactions  for  by  far  the  greatest  number  of  the  people, 
progressively  weakened  the  economic  basis  of  the  Roman  empire.  Thus 
although  it  was  the  barbarian  invasions  that  brought  about  the  fall  of 
the  empire,  the  main  underlying  cause  was  the  chronic  economic  and 
financial  chaos  suffered  in  the  fifth  century,  the  product  of  excessive, 
unproductive  expenditure  on  defence  and  welfare.  European  unity 
disintegrated  as  and  when  its  uniform  currency  disappeared,  never  again 
to  be  re-established  not  even  by  the  Holy  Roman  Empire  -  which,  as 
Voltaire  remarked,  was  neither  holy,  nor  Roman,  nor  an  empire. 
Significantly,  at  the  end  of  the  twentieth  century  a  single  currency  was 
again  seen  as  the  essential  ingredient  in  European  unity. 

As  for  Britain,  from  being  part  of  a  vast  empire  with  a  currency  of 
relatively  high  quality  produced  from  a  limited  number  of  carefully 
controlled  mints,  she  became  isolated  and  undefended  from  about  the 
year  410  onward.  With  the  Romans  went  their  peace,  their  order,  their 
language  and  their  coinage.2  But  elsewhere  as  the  Dark  Ages  began  to 
cast  their  deepening  shadows,  the  memories  lingered  on.  Each  warring 
tribe  and  city-state  attempted  to  combine  defence  or  conquest  with  the 
universally  understood  symbol  of  power  and  trade,  its  own  coinage. 
Painfully,  from  the  disintegrated  remnants  of  imperial  power  and 
finance,  new  tribal,  and  eventually,  national  currencies  were  to  emerge 
involving  not  only  former  Romanized  but  also  'barbarian'  or  primitive 
tribes.  Subsequent  to  the  Graeco-Roman  extension  of  coinage  the  most 
important,  simple,  single  test  of  whether  an  economy  is  'primitive'  or 
'civilized'  lies  in  whether  or  not  it  used  coins. 

After  the  end  of  the  Roman  empire  in  the  West,  the  primitive,  newly 
emerging  peripheral  kingdoms  had  first  to  learn  or  relearn  how  to  coin. 
Then,  1,000  years  later  -  and  at  least  3,000  years  later  than  the  advanced 
banking  system  of  Babylon  —  they  had  once  again  to  learn  for  themselves 
the  significance  of  banking,  being  ignorant  of  the  earlier  foreign  models. 
This  time  the  further  development  of  banking  in  a  more  advanced 
monetary  system  was  not  impeded  by  the  supremacy  of  coinage,  and  in 
process  of  time  coinage  began  to  occupy  a  place  of  progressively 
diminishing  importance.  In  the  very  long  mean  time  the  penny  and  the 
pound,  as  coin  and  unit  of  account  respectively,  became  the  main  focus  of 
financial  concern  for  the  rulers  of  medieval  and  early  modern  Britain. 

2  Roman  coins  are  still  emerging,  adding  significantly  to  our  knowledge.  In  1994  near 
Bridgend,  about  ten  miles  from  today's  Royal  Mint,  some  1,400  coins  were  found, 
dating  from  Diocletian's  reign.  In  1999  by  far  the  largest  hoard  of  Roman  coins  ever 
found  in  Britain,  comprising  9,377  silver  denarii,  was  discovered  near  Glastonbury. 


The  Penny  and  the  Pound  in  Medieval 
European  Money,  410-1485 

Early  Celtic  coinage 

Before  tracing  the  rise  of  the  penny  and  the  pound  sterling  it  is 
convenient  to  look  briefly  at  the  development  of  early  Celtic  coinage,  a 
generally  neglected  subject  the  importance  of  which  has  been 
overshadowed  by  the  money  of  imperial  Rome.  Peripheral  in  every  sense 
of  the  word  to  the  Graeco-Roman  coinage  system  were  the  many 
mainly  imitative  coins  produced  by  the  Celtic  tribes  along  the  northern 
and  western  borders  of  the  Roman  empire.  The  coins  of  the  Celts  had 
been  in  existence  for  a  century  or  more  before  their  lands,  extending 
from  Finisterre  in  Spain,  through  Gaul  and  southern  Britain,  to  the  Elbe 
in  Germany,  became  incorporated  in  the  Roman  empire.  This  area  of 
north-western  Europe  experienced  three  coinage  phases  between  the 
middle  of  the  second  century  BC  and  the  seventh  century  AD.  First  came 
two  centuries  or  so  of  recognizably  indigenous  coins  based  mainly  on 
the  Macedonian  coins  of  Philip  II  and  Alexander  and  later  those  of  the 
Romans.  Secondly,  the  middle  period  lasted  some  400-500  years,  when 
the  greater  part  of  the  regions  concerned  was  conquered  by  Rome, 
when  Roman  coinage  was  predominant  and  when  the  previous 
indigenous,  and  usually  inferior,  coinage  was  discontinued.  In  effect, 
the  periphery  was  pushed  several  hundred  miles  north.  In  the  new,  more 
distant  peripheral  regions  some  indigenous  Celtic  coinage  was  still 
produced,  though  far  less  distinctively  Celtic,  being  hardly  more  than 
copies  of  the  dominant  Roman  coins  which  circulated  in  their  own 
kingdoms  as  well  as  within  the  vast  empire  to  the  south.  Thirdly  there 
came  a  period  of  300-400  years  following  the  break-up  of  the  Roman 
empire  in  the  West  when  new  types  of  coinage  patchily  re-emerged  in 



the  previously  Celtic  countries  which  meanwhile  suffered  the  shocks  of 
barbarian  invasions.  It  was  during  this  latter  phase,  after  Britain  had 
endured  two  generally  coinless  centuries,  that  the  early  English  penny 
eventually  made  its  appearance.  In  contrast  to  the  headlong  decline  in 
the  quality  of  coined  money  in  the  disintegrating  Roman  empire  of  the 
West,  coins  of  the  highest  quality  continued  to  be  produced 
uninterruptedly  in  parts  of  the  eastern  empire  based  on  Constantinople 
for  over  seven  centuries.  In  north-west  Europe  the  barbarian  invasions 
led  to  a  marked  reduction  in  the  quality  and  in  the  quantity  of  coined 
money,  with  Britain's  economy  as  an  interesting  extreme  case  being 
reduced  to  a  prolonged  period  of  barter. 

Traditional  historians  have  tended  to  overlook  the  role  played  by 
Celtic  coinage  in  the  early  history  of  British  money.  Since  Celtic  coinage 
was  to  a  considerable  extent  simply  crude  imitations  of  that  of 
Macedon  and  Rome,  why  should  it  claim  our  attention?  However,  as 
D.  F.  Allen  has  emphasized,  firstly,  'it  is  in  Britain  that  all  the  streams  of 
western  Celtic  coinage  converge'  so  that  much  of  Celtic  monetary 
development  is  seen  in  concentrated  form  in  Britain.  Secondly,  'no  other 
surviving  Celtic  remains  illustrate  more  vividly  the  life  and  thoughts  of 
our  insufferably  quarrelsome  but  superbly  imaginative  forebears'  (1980 
25,  41).  Surely  these  are  sufficiently  telling  reasons  for  examining  briefly 
the  involved,  incomplete  and  often  confusing  history  of  Celtic  coinage. 
There  are  two  other  reasons,  one  negative,  one  positive,  but  both 
equally  compelling.  The  negative  reason  is  perhaps  most  easily 
captured  in  the  simple  question:  what  other  evidence  is  there?  It  so 
happens  that  there  is  a  marked  paucity  of  written  evidence,  and  what 
exists  is  of  doubtful  reliability.  On  the  other  hand  literally  hundreds  of 
thousands  of  Celtic  coins  have  been  found,  mostly  on  the  Continent, 
where  hoards  of  up  to  40,000  coins  have  been  discovered.  In  a  number 
of  instances  we  have  learned  of  the  existence  of  certain  rulers  only 
through  their  representation  on  their  coins  (though  some  are  spurious). 
Although  the  evidence  presented  by  coins  is  copious,  it  may 
nevertheless  be  confusing  in  that  forgeries,  imitations  and  migration 
may  make  it  impossible  to  fix  the  place  of  minting  and  the  region  of 
currency  with  any  precision.  Similarly  with  dating:  unlike  our  coins, 
dates  were  not  generally  indicated  on  early  coinages.  For  instance  the 
first  date  on  English  coins  did  not  appear  until  1548  in  the  reign  of 
Edward  VI,  and  with  the  Roman  numerals  MDXLVIII. 

The  copious  and  concrete  evidence  of  coins  is  therefore  not  always 
either  as  obvious  or  as  exact  as  might  first  be  supposed.  The 
interpretation  of  the  plentiful  and  durable  evidence  given  by  coins  is 
therefore  a  difficult  matter,  involving  painstaking  work  over  many 



years.  Fortunately  British  and  other  numismatists  involved  in  the  study 
of  early  northern  European  coinage  'have  reached  a  very  high  standard 
in  their  identification  of  individual  coins  and  in  the  scientific  analysis  of 
coin  hoards' (Thompson  1956,  15).  Unfortunately,  in  contrast  with  the 
propaganda  that  was  such  a  revealing  feature  of  Roman  currencies, 
many  of  the  Celtic  and  early  English  coins  were  sparing  in  their 
inscriptions,  so  that  they  do  not  yield  as  much  information  as  that 
customarily  provided  by  Roman  coins. 

The  most  plentiful  of  the  earliest  Celtic  coins  in  north-western 
Europe  and  the  earliest  found  in  Britain  were  of  pure  gold,  being  direct 
imitations  of  the  gold  stater  of  Philip  II  of  Macedon,  with  the  head  of 
Apollo  on  the  obverse  and  Philip  riding  his  chariot  on  the  reverse.  It 
may  well  be  that  some  trading  connections,  e.g.  with  the  early 
Phoenicians,  may  have  brought  southern  Britain  into  sporadic  contact 
with  the  eastern  Mediterranean.  But  the  spread  of  knowledge  of  such 
coinage  is  more  generally  held  to  be  the  result  of  migration  and  in 
particular  of  the  use  of  Celtic  mercenaries  by  Philip  and  Alexander. 
Given  the  high  value  of  gold  coinage,  the  military  influence  in 
originating  the  spread  of  such  coinage  was  therefore  almost  as 
important  in  Celtic  as  in  Graeco-Roman  financial  history.  In  the  same 
way  that  the  aggressive  military  ambitions  of  the  Macedonian,  Persian 
and  Roman  armies  were  largely  responsible  for  multiplying  their  coins, 
so  also  did  such  wars  stimulate  coin  production  by  their  'barbarian' 
enemies.  As  Daphne  Nash,  an  expert  on  Celtic  coinage,  has  recently 
confirmed:  'In  every  area,  wars  with  Rome  provoked  unusually  high 
levels  of  coin  production  to  pay  for  armies  and  associated  expenses' 
(1980,  77).  Britain  was  probably  the  last  of  the  major  Celtic  areas  of 
northern  Europe  to  begin  to  mint,  and  was  the  last  to  maintain 
independent  minting  before  being  overwhelmed  by  Rome.  The  last  of 
what  may  be  strictly  called  'Celtic  coinage',  as  distinct  from  later  coins 
produced  in  still  largely  Celtic-speaking  countries,  thus  came  to  an  end 
by  the  middle  of  the  first  century  AD. 

The  earliest  date  given  for  Philip's  stater  in  England  in  Seaby's 
standard  catalogue  is  125  BC.  Thereafter  independent  minting 
continued  until  AD  61  (Seaby  and  Purvey  1982,  1).  As  well  as  gold,  silver, 
bronze  and  'potin'  were  also  coined  by  the  Celts.  As  their  confidence 
grew,  so  did  the  independence  of  their  designs,  which  no  longer  were 
simply  imitative.  The  Celts  were  a  pastoral  people,  so  the  horse  is  a 
strongly  favoured  design.  As  Celtic  town  life  developed,  so  the  quantity 
of  their  coinage  increased  very  considerably,  particularly  of  alloyed 
silver,  bronze  and  copper-tin  alloys,  showing  that  trade  was  growing 
and  becoming  the  main  purpose  for  coining.  At  the  same  time  the 



quality  of  the  gold  and  silver  coinage,  in  weight  and  purity,  declined 
with  the  increased  output.  The  Celtic  love  of  hunting  is  also  given 
prominence  in  the  boar  designs  favoured  by  the  Iceni  of  East  Anglia, 
and  as  farmers  they  also  gave  tribute  to  the  fertility  of  East  Anglia  by 
prominently  depicting  ears  of  wheat,  similar  to  that  on  modern  French 

The  Iceni  in  East  Anglia,  the  Cantii  of  Kent,  the  Atrebates  of 
Hampshire,  Surrey  and  Sussex,  and  the  Dobunni  of  the  Midlands  and 
south-west  were  the  most  prolific  coin-makers  of  Celtic  Britain  between 
about  75  BC  and  AD  61.  In  the  latter  year,  after  the  Iceni's  revolt  under 
Queen  Boadicea  had  sacked  London  and  Colchester,  killing  some 
70,000  Romans,  Celtic  independence,  and  with  it  Celtic  coinage,  over 
most  of  southern  Britain  was  extinguished  when  Roman  authority  was 
restored.  Thereafter  England  became  absorbed  into  the  Roman 
monetary  sphere.  From  time  to  time,  usurping  kings  marked  their 
ambitions  in  the  usual  way  by  issuing  their  own  coins,  and  the  rarity  of 
such  occasions  is  indicated  by  the  enormously  inflated  prices  quoted  in 
Seaby's  catalogues.  Thus  whereas  the  catalogued  price,  in  1982,  of  a 
good  Celtic  copy  of  a  Philippian  gold  stater,  was  £500  and  an  Iceni 
boar-head  or  horse  coin  fetched  only  £45,  the  gold  and  silver  coins  of 
the  usurping  kings  commanded  far  higher  prices.  The  gold  aureus  of 
Victorinus  (268-70)  was  priced  between  £3,500  and  £10,000;  a 
Carausius  (287-93),  who  minted  his  gold  in  London,  would  fetch 
between  £7,500  and  £17,500;  while  the  gold  solidus  of  Magnus 
Maximus  (383-8)  was  priced  at  between  £2,750  and  £8,000. 

Whereas  the  numismatist  and,  even  more,  the  ordinary  coin 
collector,  may  invest  great  significance  in  rarity,  the  economist  must 
express  far  more  interest  in  the  mundane,  common  and  everyday 
coinage.  Of  particular  interest  in  this  connection  are  the  'potin' 
currencies  that  became  of  especial  importance  on  the  Continent,  but 
also  spread  to  southern  England  in  Celtic  times.  The  composition  of  the 
'potin'  coins  varied  with  tribe  and  locality,  but  their  basic  similarities 
derived  from,  first  their  cheap  method  of  manufacture,  secondly  their 
'token'  nature,  thirdly  their  small  size  and  fourthly,  related  to  all  three 
previous  aspects,  their  purpose  in  meeting  the  ordinary  needs  of  small- 
value  trade.  Various  combinations  of  copper  and  tin,  probably 
dependent  on  the  cheapness  and  availability  of  the  raw  materials, 
formed  the  most  common  metals  used  for  this  currency,  which  was  very 
plentiful  in  Gaul  before  it  was  conquered  by  Julius  Caesar.  Potin  coins 
continued  in  circulation  into  the  first  century  AD.  They  were  also 
common  in  Kent  and  circulated  at  least  until  AD  43. 

Instead  of  being  struck  or  hammered,  as  were  the  dearer  coins  in 



silver  and  gold,  the  potin  coins  were  cast.  They  may  first  have  been  cast 
individually,  but  to  meet  the  growing  demand  for  this  popular  form  of 
everyday  money,  a  method  of  casting  in  fairly  long  strips  was  developed. 
Since  their  intrinsic  value  was  low  in  comparison  even  with  the  debased 
and  imperfect  struck  coins  of  gold  and  silver  and  their  alloys,  it  is 
probable  that  they  circulated  as  tokens,  accepted  for  trade  at  a  higher 
value  than  their  metallic  worth.  No  great  skill  was  required  in  their 
manufacture  and  it  is  quite  possible  that  the  ubiquitous  Celtic  smiths 
were  therefore  able  fairly  easily  to  supply  local  demands  to  supplement 
the  official  issues.  Although  Roman  coinage  displaced  the  Celtic 
varieties,  the  small  'minissimi'  coins  produced  towards  the  end  of  the 
Roman  occupation  of  the  Celtic  lands  served  a  somewhat  similar 
purpose  to  the  earlier  'potin'  coins. 

Money  in  the  Dark  Ages:  its  disappearance  and  re-emergence 

When  the  Romans  arrived  in  Britain  they  found  a  Celtic-speaking 
country,  as  were  the  majority  of  its  peasants  when  they  left  -  or  left 
Britain  to  its  own  fate  -  in  410.  Even  before  that  date  Germanic 
mercenaries  had  been  imported  by  the  Roman  authorities  into  Britain 
in  fairly  large  numbers.  Gradually  thereafter  the  Roman  language,  the 
relatively  new  Christian  religion  and  Roman  coinage  ceased  to  influence 
the  life  of  the  people.  In  practice  the  pace  of  the  attenuation  of  Roman 
influence  varied  with  the  raids,  invasions  and  settlements  of  the  Angles, 
Jutes,  Saxons  and  Friesians.  The  Anglo-Saxon  Chronicle  gives  the 
traditional  date  of  449  for  the  first  landing  in  Kent  by  the  brothers 
Hengist  and  Horsa.  At  any  rate  it  is  clear  that  from  about  that  time  the 
number  of  the  invaders'  settlements  grew,  spreading  from  the  south-east 
over  most  of  England  during  the  following  century,  changing  the  whole 
country  from  Romano-British  to  Anglo-Saxon,  from  Christian  to 
pagan,  from  relatively  urbanized  to  a  pattern  of  deserted  towns  and 
rural  settlements,  and  from  a  thoroughly  monetized  economy  based  on 
a  uniform  coinage  system,  to  a  backward  economy  where  coins  first 
became  scarce  and  then,  with  surprising  speed,  disappeared  completely 
from  circulation. 

The  disruption  accompanying  the  decline  and  fall  of  the  Roman 
empire  was  nowhere  more  marked  than  in  Britain,  where  the  term  'the 
Dark  Ages'  therefore  carries  special  significance.  Given  the  increased 
insecurity  of  life  and  the  disruption  of  trade  and  social  contacts,  the 
burial  of  treasures  for  reasons  of  safekeeping  was  a  natural  and 
common  reaction.  There  was  a  remarkable  increase  in  the  hoarding  of 
coins  in  the  late  fourth  and  early  fifth  centuries  up  to  around  440.  The 



fact  that  these  cluster  in  the  south-west  'suggests  that  the  accumulation 
and  burial  of  these  hoards  should  be  a  Romano-British  phenomenon'  - 
a  sort  of  retreating  frontier  attesting  the  advance  of  the  early  Anglo- 
Saxon  armies  (C.  E.  King  1981,  11).  Whereas  on  the  Continent  Roman 
influence  on  language,  laws  and  coinage  continued  to  exert  a  weakening 
but  still  pervasive  influence,  the  break  between  island  Britain  and 
Roman  civilization  was  far  more  complete  and  the  disruption  through 
wars  and  invading  settlers  much  more  marked.  Britain  reverted, 
suddenly  in  some  areas  and  fairly  quickly  everywhere,  to  a  more 
primitive,  less  urbanized,  moneyless  economy.  This  most  significant 
and  rare  example  of  a  virtual  reversion  to  barter  for  as  long  as  around 
200  years  by  a  country  which  had  known,  used  and  produced  coins  for 
nearly  500  years  remained  a  matter  of  dispute  among  the  experts  for 
many  years.  However,  the  authoritative,  painstaking  and  monumental 
researches  of  experts  like  Professors  Spufford,  Grierson  and  Blackburn, 
among  others,  have  removed  any  lingering  doubts  about  the  total 
collapse  of  coinage  and  currency  in  Britain  and  the  contrast  this  showed 
with  the  situation  just  across  the  English  Channel. 

Thus  Professor  Spufford  emphasized  the  fact  that  after  the  Roman 
army  left  'no  further  coin  entered  Britain  and  within  a  generation,  by 
about  435  AD,  coin  ceased  to  be  used  there  as  a  medium  of  exchange. 
Not  for  200  years  .  .  .  were  coins  again  used  in  Britain  as  money'  (1988, 
9).  Similarly  Grierson  and  Blackburn  state  that  'Britain  was  the  only 
province  of  the  Roman  Empire  where  the  barbarian  invaders  brought  a 
complete  end  to  coin  production  and  monetary  circulation  for  almost 
two  centuries'  (Grierson  and  Blackburn  1986,  156).  The  Continent 
managed  to  maintain  a  degree  of  continuity  in  customs  and  coinage. 
The  contrasting  discontinuity  in  Britain  meant  that  not  until  the 
seventh  and  eighth  centuries  (despite  a  false  dawn  in  the  sixth  century) 
did  she  relearn  how  to  use  and  make  coined  money,  and  then  only  in 
painfully  slow  stages.  Thus  the  monetary  use  of  either  existing  or 
imported  coins  probably  ceased  in  the  generation  following  430,  while 
only  in  the  generation  preceding  630  did  Britain,  and  then  mainly  in  the 
south-east,  begin  slowly  to  accustom  itself  once  more  to  the  gold  coins 
imported  from  across  the  Channel. 

The  Canterbury,  Sutton  Hoo  and  Crondall  finds 

In  examining  the  origins  of  the  'penny'  we  must  first  look  at  when  coins 
of  any  kind  were  first  minted  in  Anglo-Saxon  England,  and  then  tackle 
the  question  of  which  type  of  indigenous  coin  might  first  legitimately  be 
called  a  penny.  English  indigenous  'coinage'  had  a  possibly  abortive 



birth  in  Canterbury  in  the  last  few  decades  of  the  sixth  century, 
although  only  in  recent  years  has  the  nature  of  the  birth  or  abortion 
become  clear.  The  traditional  origin  of  English  coined  'money-like 
objects'  is  said  to  begin  in  about  561,  after  the  marriage  of  the  Christian 
Merovingian  Princess  Bertha  with  Prince  Aethelbert,  who  became  king 
of  Kent  in  590.  Bishop  Liudard,  who  came  with  Bertha  to  Canterbury, 
minted  a  number  of  gold  'coins'  shortly  thereafter.  However,  when 
these  Canterbury  'coins'  were  critically  examined  it  appears  that  they 
were  more  in  the  nature  of  medallions,  including  a  necklace  of  'coins', 
more  for  ornament  than  for  use  as  currency.  In  597,  heartened  by  the 
welcome  shown  to  the  Christian  religion  in  Kent,  Pope  Gregory  the 
Great  -  allegedly  stirred  also  by  the  sight  of  the  young  blond,  blue-eyed 
English  prisoners  in  Rome  ('not  Angles  but  Angels')  -  dispatched  St 
Augustine  to  Canterbury.  According  to  Sir  John  Craig,  London,  too, 
'accepted  a  Bishop  and  gained  a  mint  between  600  and  604'  (1953,  4). 
Bishop  Mellitus  issued  gold  coins  from  the  London  mint  from  about 
604  for  a  dozen  years  to  616. 

Since  Christianity  and  coinage  had  disappeared  from  England 
together  it  seemed  highly  appropriate  and  unsurprising  that  it  became 
widely  accepted  that  they  also  returned  together.  However,  the 
researches  of  Professors  Spufford  and  Grierson  show  these  early 
mintings  to  be  a  false  dawn.  'In  the  larger  part  of  England  coin  did  not 
circulate  as  money  [even  as  late  as]  the  eighth  century,  having  spread 
very  slowly  from  the  south-east  from  around  630'  (Spufford  1981,  41).  It 
was  from  the  gradual  rebuilding  of  commercial  and  cultural  contacts 
with  France  and  Italy  that  Anglo-Merovingian  types  of  coinage 
gradually  began  to  circulate  for  commercial  purposes  in  south-east 
England.  According  to  J.  D.  A.  Thompson,  'the  presence  of 
Merovingian  and  Byzantine  gold  pieces  in  various  parts  of  the  country 
points  to  a  resumption  of  commercial  intercourse  with  Europe  long 
before  600  and  to  a  widespread  acceptance  of  the  East  Roman  solidus 
and  the  Merovingian  tremissis  as  a  convenient  trade-currency'  (1956, 
xviii).  In  the  light  of  more  recent  research  Thompson's  timing  appears 
premature.  Christianity,  trade  and  coinage  did,  however,  grow  faster 
and  earlier  in  the  south  and  east  of  England  than  in  the  rest  of  the 
country  and  prepared  the  way  for  a  more  general  acceptance  of  both  the 
cross  and  the  coin  during  the  seventh  and  eighth  centuries.  Still  later  on 
in  northern  Europe  the  influence  of  Christian  missionaries  in 
persuading  Nordic  rulers  to  issue  their  own  coined  moneys  is 
indisputable  (Spufford  1988,  83). 

The  re-entry  of  coinage  into  England  in  the  sixth  and  seventh 
centuries  repeated  in  certain  respects  the  pattern  of  its  original  entry 



some  600  years  earlier.  In  both  cases  the  original  coinage  was  of  gold, 
then  of  gold  and  silver  alloys.  In  both  cases  it  was  natural  that  our 
nearest  neighbours  across  the  Channel  should  have  been  responsible  for 
the  circulation  of  coins  which  were  the  object  of  our  initial  indigenous 
imitations.  In  the  first  century  BC  it  had  been  the  Celtic  Belgae,  in  the 
sixth  and  seventh  centuries  AD  it  was  the  Merovingian  Gauls  who  first 
taught  the  inhabitants  of  south-east  Britain  how  to  use  and  mint  coins. 
However,  the  Anglo-Saxons  were  not  quite  ready  in  the  early  seventh 
century  for  the  full  acceptance  of  either  Christianity  or  coinage. 
Whatever  limited  issues  may  have  come  from  the  London  mint  in  the 
first  two  decades  of  the  seventh  century  soon  ceased  as  the  backsliding 
Londoners  reverted  to  paganism  after  616. 

In  unravelling  the  tangled  threads  of  early  English  monetary  history 
the  following  three  factors  have  been  found  to  be  of  critical  importance. 
First  the  Sutton  Hoo  hoard  found  in  a  ceremonial  burial  ship  near 
Woodbridge,  Suffolk  in  1938;  secondly  the  Crondall  hoard  found  at  the 
village  of  that  name  in  Hampshire  as  far  back  as  1828  but  the  subject  of 
much  recent  research;  and  thirdly  the  patient  researches  of  Grierson, 
Spufford,  Blackburn,  Kent,  Oddy,  Sutherland,  Dolley  and  other  experts 
on  Anglo-Saxon  coinage,  which  have  enabled  us  to  improve  our 
interpretation  and  especially  the  dating  of  the  coins  found  in  these  and 
other  similar  hoards.  The  Sutton  Hoo  ship,  buried  in  about  620  to  625, 
contained  no  English  coins.  Most  of  the  Crondall  hoard  of  101  gold 
coins,  relating  to  the  630s  and  640s  -  the  precise  date  is  still,  as  we  shall 
see,  in  dispute  -  had,  however,  undoubtedly  been  minted  in  England.  Of 
the  original  Crondall  hoard,  three  have  been  lost.  Of  the  remainder 
eighteen  are  Merovingian,  nineteen  are  Anglo-Merovingian  copies 
minted  in  England,  fifty-two  are  Anglo-Saxon  both  in  type  and 
minting,  three  are  blanks,  while  the  other  six  are  of  mixed  provenance. 
Despite  the  fact  that  some  1,200  Roman  hoards  have  been  uncovered  in 
Britain,  such  as  that  at  Beachy  Head  in  1973  which  unearthed  5,540 
Roman  coins,  early  Anglo-Saxon  coin  finds  are  so  rare  that  the  positive 
evidence  of  the  Crondall  hoard  remains  of  the  utmost  importance. 
Somewhere  between  620  and  650,  probably  from  about  630,  a  date 
confirmed  by  a  number  of  other  smaller  finds,  England  had  begun 
again  to  mint  her  own  coins,  now  in  moderately  significant  amounts  for 
general  circulation  and  for  trade,  and  not  simply  for  gifts  or  decoration. 

Among  the  many  rich  treasures  found  in  the  Sutton  Hoo  ship  was  a 
bejewelled  purse  containing  some  thirty-seven  gold  Merovingian  coins 
(plus  three  gold  blanks).  Unfortunately  only  one  of  these  was  readily 
identifiable  by  bearing  the  ruler's  inscription,  the  Frankish  King 
Theodebert  (595-612).  Tentatively  the  date  of  650  became  generally,  but 



not  universally,  accepted  as  the  burial  date.  However  a  number  of 
numismatists,  including  Jean  Lefaurie  in  France  and  Dr  John  Kent  of 
the  British  Museum,  doubted  the  authenticity  of  this  date.  Dr  Kent  and 
his  assistant  Dr  Andrew  Oddy,  a  physicist,  carefully  devised  a  method 
of  dating  Merovingian  coinage  which  could  be  applied  to  the  Sutton 
Hoo,  Crondall  and  other  finds,  based  on  the  fact  that  Merovingian  gold 
coinage  became  progressively  debased  with  silver  during  the  seventh 
century.  They  very  carefully  tested  the  specific  gravity  of  some  900 
Merovingian  coins,  and  by  combining  the  results  with  base-reference 
coins,  the  dates  of  which  were  already  established  beyond  doubt, 
derived  a  time-scale  against  which  all  other  Merovingian  currency 
could  be  assessed.  As  a  result  of  this  painstaking  and  scientifically 
based  research,  Dr  Kent  came  to  the  firm  conclusion  that  the  mint  date 
of  the  latest  coin  found  in  the  Sutton  Hoo  ship  was  between  620  and 
625  (see  Brown  1978). 

The  economic  and  financial  significance  of  the  Sutton  Hoo  find 
should  not  be  based  narrowly  or  exclusively  on  its  foreign  coins,  but 
rather  the  richness  and  widespread  origins  of  its  luxuries  should  also  be 
taken  into  account.  These  would  seem  to  indicate  that  by  the  first  half 
of  the  seventh  century  Britain's  trading  links  with  the  Continent  had 
again  become  of  significant  proportions.  Gold  and  silver  ornaments  of 
the  finest  craftsmanship,  extending  in  geographical  range  from  the 
Celtic  west  to  the  Byzantine  east,  are  to  be  seen  in  the  burial  ship. 
Furthermore  if  a  relatively  unimportant  and  almost  unknown  East 
Anglian  ruler  (probably  King  Raedwald  —  but  the  matter  is  disputed  by 
the  experts)  could  command  such  wealth,  fully  comparable  with  that  of 
any  contemporary  Germanic  prince,  then  the  early  Anglo-Saxon 
standards  of  living,  at  least  in  and  around  the  courts,  were  not  nearly  so 
crude  as  has  often  been  assumed.  F.  M.  Stenton  considered  the  evidence 
of  the  Sutton  Hoo  find  sufficiently  clear  on  this  point  at  least  to 
conclude  that  it  was  'in  every  way  probable'  that  the  eastern  silver  had 
come  to  England  'through  trade  rather  than  plunder'  (1946,  52).  The 
Sutton  Hoo  find  therefore  suggests  that  the  rudimentary  foundations  of 
a  trading,  coin-using  economy,  though  at  first  dependent  on  foreign 
coins,  were  being  laid  down  in  southern  and  eastern  Britain  early  in  the 
seventh  century,  while  the  Crondall  find  further  confirms  the  progress 
made  in  trade  and  payments,  using  indigenous  as  well  as  foreign  coin, 
as  the  century  progressed.  As  to  the  relative  importance  of  such  trade  as 
compared  with  tribute,  gifts  or  other  ways  of  stimulating  the  issue  and 
exchange  of  coins  in  the  Dark  Ages,  we  are  still  very  much  in  the  dark. 
Some  authorities,  such  as  Grierson,  insist  that  'alternatives  to  trade 
were  more  important  than  trade  itself  (Grierson  1979,  140).  However, 



from  the  point  of  view  of  the  development  of  a  coin-using  economy 
both  trade  and  its  alternatives,  such  as  ransoms,  tributes  and  payments 
to  mercenaries,  acted  together  as  complementary  and  self-reinforcing 
inducements  to  extend  the  currency  of  coinage. 

The  somewhat  negative  evidence  of  the  Sutton  Hoo  hoard  stands  in 
contrast  to  the  positive  evidence  of  the  mixed  Anglo-Merovingian  coins 
of  the  Crondall  hoard.  Carried  to  its  extreme,  the  Sutton  Hoo  evidence 
simply  proves  that  there  were  no  Anglo-Saxon  coins  in  that  purse:  it 
does  not  prove  that  there  were  none  anywhere  else  at  the  same  time, 
although  in  the  absence  of  other  significant  and  undisputed  finds,  Dr 
Kent,  like  most  other  experts,  considers  that  this  is  probably  the  case. 
He  therefore  attaches  much  more  importance  to  the  positive  evidence  of 
the  Crondall  hoard  which  points  to  the  probability  of  a  significant 
Anglo-Saxon  gold  coinage  circulating  from  about  630  and  continuing 
until  about  675.  This  summary  of  the  main  schools  of  thought 
concerning  the  origins  of  English  coinage  demonstrates  that  the 
financial  history  of  the  Dark  Ages  is  still  very  much  a  live  issue.  In  1980 
Dr  Kent  reaffirmed  that  'the  first  English  coinage  is  known  almost 
entirely  from  the  Crondall  hoard'  which  'seems  to  date  from  the  630s' 
(p.  129).  This  is  earlier  than  the  date  given  by  Grierson  and  Blackburn. 
The  view  of  the  latter  authorities  is  that  'not  until  the  630s  and  640s 
was  coin  production  sustained  in  England  and  it  is  this  phase  which  is 
represented  in  the  Crondall  Hoard  now  dated  to  c.650  or  a  little  earlier' 
(1986,  161).  The  gap  between  the  various  schools  regarding  the  birth  of 
English  coinage  has  thus  been  narrowed  from  an  unbridgeable  seventy 
years  to  a  now  generally  accepted  couple  of  decades  at  the  most. 

The  main  denomination  of  the  coins  found  in  both  the  Sutton  Hoo 
and  Crondall  finds  consisted  of  what  English  numismatists  have  called 
the  'thrymsa',  derived  from  the  tremissis  or  one-third  of  the  gold 
solidus,  and  about  one-sixth  the  weight  of  a  modern  English  sovereign. 
Once  the  new  gold  thrymsa  had  established  itself  its  gold  purity  began 
to  be  reduced.  We  have  seen  how  the  gold  content  of  the  Merovingian 
coinage  became  progressively  debased  with  silver  from  the  early  part  of 
the  seventh  century  onward  -  a  pattern  frequently  repeated.  The  same 
process  occurred  at  a  later  date  but  at  a  faster  pace  in  England.  Rapidly 
from  about  675  onward  the  early  English  coinage  was  replaced  by  silver 
as  the  main  metal.  This  marked  an  important  step  on  the  way  to  a 
wider  circulation  and  to  the  adoption  of  the  silver  penny  as  the  age- 
long trademark  of  English  currency. 



From  sceattas  and  stycas  to  Offa's  silver  penny 

Gold  was  too  scarce  and  too  precious  a  metal  in  England  and  France  to 
be  used  as  the  basis  of  a  rapidly  expanding  monetary  system.  As  it 
happened,  the  rejection  of  gold  in  favour  of  silver  was  a  most  propitious 
development,  for  Britain,  unlike  Byzantium,  lacked  the  considerable 
supplies  of  gold  needed  to  maintain  the  output  of  coins  in  sufficient 
amounts  to  meet  the  increasing  demands  of  government,  Church  and 
trade  and  in  denominations  low  enough  to  be  suitable  for  an  extensive 
coverage  of  commercial  interchange.  Thus  the  original  gold  currency  of 
Anglo-Saxon  England  lasted  barely  seventy  years,  for  from  about  675 
the  gold  issues  first  became  alloyed  with  silver  and  then  early  in  the 
eighth  century  gave  way  almost  completely  to  silver,  supplemented  for  a 
time  with  a  subsidiary  coinage  of  brass  or  copper.  Even  so,  the  various 
rulers  of  the  different  regions  of  a  still  disunited  England  issued  silver 
alloyed  with  inferior  metals  to  the  extent  of  up  to  50  per  cent  or  more 
for  a  century  after  675  -  and  in  Northumbria  until  867,  when  Osbert 
was  defeated  by  the  Danes.  Eventually  a  handsome  penny  of  good- 
quality  silver  supplanted  all  other  rivals  in  the  kingdom  of  Kent  in 
about  765  and  was  being  extended  all  over  England,  except 
Northumbria,  until  the  wholesale  disruption  caused  by  the  Viking 
invasions  and  the  settlements  in  the  Danelaw  interrupted  the  political 
and  financial  unification  of  England. 

The  most  substantial  issues  of  the  first  half  of  the  seventh  century 
have  been  -  erroneously  -  known  as  'sceat'  or,  in  the  plural,  'sceattas'. 
The  term  originally  meant  'treasure',  similar  to  the  present  German 
'Schatz'  and  the  even  more  similar  Danish  'Skat'.  Although  it  is,  strictly 
speaking,  an  error  to  use  a  word  which  was  purely  a  unit  of  account  to 
refer  to  a  specific  coin,  the  habit  has  become  so  ingrained  in  modern 
scholarship  that  it  would  be  rather  too  pedantic  not  to  conform  to  the 
custom.  For  this  reason  the  term  'penny'  is  not  generally  applied  to  the 
sceat  currency  but  reserved  for  later  issues  of  a  distinctly  different  type 
of  coinage.  Compared  both  with  the  previous  thinnish  gold  coins  and 
the  later  pennies,  the  sceat  was  typically  dumpy,  thick  and  small  in 
diameter  rather  like  the  modern  short-lived  decimalized  halfpenny  but 
twice  as  thick  and  of  course  very  much  cruder.  As  with  the  gold 
currency,  sceats  were  issued  not  only  by  royal  but  also  by  a  number  of 
ecclesiastical  mints,  especially  York  and  Canterbury. 

The  sceattas  varied  greatly  in  type  and  purity.  As  with  the  previous 
gold  coinage,  relatively  few  of  the  sceattas  originally  carried  the  name 
or  head  of  the  king.  The  designs  became  more  thoroughly  and 
confidently  indigenous,  and  less  like  mere  copies  of  Roman  or 



Merovingian  coins.  A  most  popular  series  were  the  'porcupines'  while 
others  carried  imaginary  designs  such  as  that  known  by  numismatists 
as  the  'fantastic  animal'.  Other  common  types  of  design  consisted  of 
'whorls',  'wolves'  and  'serpents'.  The  lettering  of  some  of  the  early 
Anglo-Saxon  coins  was  made  in  the  Runic  alphabet;  some  show  mixed 
Roman  and  Runic  writing  while  some  later  types  copy  Arabic  designs, 
including  at  least  one  series  with  the  script  written  backwards.  The 
names  of  bishops  rather  than  kings  occur  occasionally,  while  the 
importance  of  the  officially  appointed  'moneyer'  is  prominently 
displayed  in  name,  abbreviation  or  other  mark.  The  degree  of 
debasement  varied  not  only  in  time  but  geographically,  with  the 
northern  half  of  the  country  generally  having  a  higher  proportion  of 
debased  silver  and  crude  bronze  or  copper  coins,  although  the  London 
mint  also  produced  heavily  debased  issues.  The  smallest  of  these 
debased  sceattas,  issued  for  a  century  or  more  in  Northumbria,  were 
termed  'stycas'.  While  the  numismatists  might  possibly  -  and  the 
collector  certainly  -  decry  the  degree  of  debasement  that  produced 
these  stycas,  the  economist  welcomes  them  as  evidence  of  the  degree  of 
penetration  of  coinage  among  the  population  and  as  clear  proof  of  the 
increase  of  the  coinage  habit. 

It  was  during  this  period,  from  the  sixth  to  the  ninth  centuries,  that 
the  traditional  seven  kingdoms  of  England,  the  so-called  heptarchy,  of 
Kent,  East  Anglia,  Essex,  Sussex,  Suffolk,  Mercia  and  Northumbria, 
became  forcibly  merged  under  the  overlordship  of  the  kings  of  Mercia 
in  the  south  and  Northumbria  in  the  north,  the  latter  being  itself  the 
product  of  a  previous  merger  between  Deira  and  Bernicia.  This  process 
was  inevitably  accompanied  by  a  much  more  uniform  monetary  system 
and  a  more  obvious  assumption  of  regal  authority  for  coinage,  with  the 
suppression  of  the  right  of  subsidiary  authorities,  whether  regal  or 
ecclesiastical,  to  coin  money.  The  head  and  name  of  the  king  therefore 
began  regularly  to  replace  the  previous  anonymous  and  ecclesiastical 
issues,  while  the  prominence  given  to  the  names  of  the  moneyers  and 
their  mints  was  reduced,  but,  luckily  for  the  numismatists,  not 

The  true  silver  penny,  then,  is  quite  distinct  from  its  precursor,  the 
sceat.  In  fact,  to  produce  these  fine  new,  broader,  thinner  coins  capable 
of  registering  finer  details,  without  damage,  something  that  had  not 
previously  been  possible  in  Anglo-Saxon  coinage,  required  much  more 
highly  skilled  minting  techniques.  This  most  significant  change  in 
Anglo-Saxon  coinage  took  place  during  the  reign  of  Offa  (757-96), 
although  the  first  of  the  pennies  that  he  was  to  make  famous,  was  not  in 
fact  produced  by  him.  Offa,  having  secured  his  western  flank  by 



constructing  the  impressive  Dyke  along  the  Welsh  border,  enlarged  his 
native  kingdom  of  Mercia  so  that  he  eventually  became  overlord  of 
much  of  western,  central,  southern  and  south-eastern  England, 
including  Kent.  Just  like  many  of  the  previous  monetary  innovations, 
the  penny  was  based  directly  on  the  new  'denier'  produced  in  Paris  by 
Pepin  the  Short  from  around  752,  and  adopted  by  his  famous  son, 
Charlemagne.  The  quality  of  the  English  product,  however,  soon 
became  markedly  superior  to  its  continental  counterparts.  Once  again, 
the  first  to  imitate  the  new  French  coin  were  the  still  independent  kings 
of  Kent;  first  Heaberth  in  765,  followed  by  Ecgbert  in  780.  The  first  true 
English  penny,  though  initially  produced  only  in  Kent,  almost  certainly 
at  the  Canterbury  mint,  thus  dates  from  765.  However,  it  was  Offa's 
conquest  of  Kent  and  his  canny  take-over  of  the  three  Kentish  moneyers 
Eoba,  Babba  and  Udd,  whose  skills  had  produced  the  first  pennies,  that 
enabled  Offa  so  to  increase  the  production  of  these  magnificent  coins 
that  their  fame  soon  spread  all  over  northern  Europe  -  even  if 
Northumbria  still  stuck  stubbornly  to  its  sturdy  sceattas  and  cheap 
stycas.  Sir  John  Craig  gives  some  telling  examples  of  the  popularity  of 
the  English  penny:1 

When  Boguslav  the  Mighty  founded  the  coinage  of  Poland,  he  copied 
English  designs  so  literally  that  coins  for  the  steppes  of  Volga  and  Don  bore 
the  names  of  Aethelred  I,  then  king  of  England,  and  of  a  London  minter. 
English  pence  were  the  first  models  of  Denmark,  Sweden  and  Norway;  they 
were  reproduced  in  the  evanescent  coinage  of  Dark- Age  Ireland,  and  their 
imitation  in  the  Low  Countries  and  Lower  Germany  became  a  nuisance  to 
England  in  more  sophisticated  times.  (1953,  7) 

From  being  merely  the  clumsy  pupils,  England's  moneyers  had  now 
risen  in  prestige  to  become  unconsciously  but  in  effect  the  masters  of 
minting  in  northern  Europe.  The  penny  came  in  with  a  bang. 
Consequently  it  seems  much  more  appropriate  to  associate  the  true  birth 
of  the  'penny'  with  the  precision  and  prestige  of  these  new  coins  rather 
than  to  ascribe  the  term  vaguely  to  an  indefinite  number  of  relatively 
unknown  issues  of  'sceats'  produced  a  hundred  or  so  years  earlier  by 
Penda,  Ine  and  other  relatively  unimportant  rulers.  The  term  'penny' 
had  of  course  been  used  for  a  century  before  Offa.  One  of  the  earliest 
references  occurs  in  the  laws  of  Ine,  king  of  the  West  Saxons  from  688 
until  726,  when  he  resigned  the  cares  of  kingship  to  retire  to  Rome, 
rather  as  certain  present-day  rulers  of  less  developed  countries 
occasionally  retire,  whether  voluntarily  or  not,  to  Bath,  London  or  Paris. 

1  Though  this  remained  peripheral  to  the  more  widespread  Carolingian  currency  of 
the  nascent  but  nebulous  Holy  Roman  Empire. 



Penda,  king  of  West  Mercia  (632-54),  appointed  his  son  Peada  as  prince 
of  part  of  his  realm.  Pada,  a  Kentish  moneyer,  whose  name  is  promin- 
ently impressed  in  Anglo-Saxon  and  in  Runic  characters  on  his  coinage, 
may  also  have  added  to  the  folklore  which  attributes  the  term  'penny'  to 
a  particular  person.  Indeed  it  has  been  customary  for  a  number  of 
contemporary  authorities  to  repeat  the  claim  that  the  very  word  'penny' 
is  derived  from  Penda,  just  as  the  early  Irish  pennies  were  called 
'Oiffings'  after  Offa.  But  the  power  and  prestige  of  Offa  and  his  coins 
were  far  greater  than  that  of  Penda.  One  may  doubt  whether  Penda's 
influence  could  in  reality  account  for  the  fact  that  variants  of  the  term 
penny  occur  during  this  period  in  the  languages  spoken  across  almost  all 
of  north-western  Europe,  including  Germany  and  Scandinavia.  The 
widespread  use  of  the  term  seems  more  likely  to  have  come  from  a 
common  element  in  producing  all  the  numerous  crude  coinages  emerg- 
ing across  northern  Europe  in  the  Dark  Ages,  namely  the  'panning'  of 
coins,  when  pouring  the  molten  metal  from  crucibles  into  the  'pans' 
required  either  for  casting  or  for  the  blanks  of  hammered  coins. 

The  very  wide  linguistic  use  of  the  'penny'  thus  probably 
corresponded  more  readily  with  its  method  of  production  than  with  the 
obscure  personality  of  a  West  Mercian  ruler.  'Penig',  the  old  English 
word  for  penny,  compares  almost  exactly  with  the  Friesian  and  Dutch 
equivalents,  and  with  the  Danish  word  for  money  in  general,  which  is 
still  'Penge'.  This,  like  the  German  'Pfanne',  from  which  Pfennig  is 
believed  to  stem,  refers  to  the  pans  which  were  then  essential  for  coining 
money  ('Penge,  from  Old  Danish  "penninge",  diminutive  of  "Pande"  = 
a  pan').  Whether  the  Penda  or  the  panning  theory  is  really  the  true 
linguistic  origin  is  unlikely  to  be  resolved  to  the  complete  satisfaction  of 
the  protagonists.  It  may  well  be  that  the  two  elements  reinforced  each 
other.  In  any  case  the  progress  of  Anglo-Saxon  coinage  from  the  crudity 
of  Penda's  sceattas  to  the  relative  splendour  of  Offa's  penny  marked  a 
revolution  in  our  monetary  history  and  established  the  penny  as  the 
only  English  coin  (with  relatively  rare  and  unimportant  exceptions)  for 
500  years  subsequently.  Money  and  penny  thus  became  practically 
synonymous  throughout  most  of  the  Middle  Ages. 

Offa  greatly  enlarged  the  quantity  of  money  produced  in  his  domains, 
and  for  this  purpose  increased  the  number  of  his  moneyers  from  three  to 
twenty-one.  There  were  also  another  nine  moneyers  known  to  be 
producing  coins  elsewhere  in  England.  Estimates  of  the  total  resulting 
'money  supply'  vary  considerably,  even  though,  unlike  today,  all  the 
experts  agree  on  what  should  be  included  in  the  total  figure.  Before 
briefly  examining  the  apparently  eternally  controversial  question  of  the 
money  supply  we  may  pay  tribute  to  the  extraordinary  vitality  of  Offa's 



experimentation  and  designs.  He  is  the  only  English  king  to  have  issued 
a  coin  bearing  the  name  and  bust  of  his  consort,  Queen  Cynethryth  (a 
custom  of  some  Roman  emperors),  and  it  was  Off  a  who  made  the 
upside-down  Arabic  inscription  on  his  golden  'dinar'.  In  the  end, 
however,  as  we  have  seen,  it  was  his  own  indigenous  designs  for  his  silver 
penny  that  became  the  model  for  others  to  copy  (Blunt  1961).  According 
to  estimates  by  Dr  D.  M.  Metcalf,  the  thirty  moneyers  at  work  in 
England  in  Offa's  day  used  some  3,000  dies  on  some  '30  tons'  of  silver  to 
produce  between  '30  and  40  million'  coins  (Metcalf  1980).  These 
probably  excessive  preliminary  estimates  were  later  reduced  to  allow  for 
considerable  recoining  and  for  the  heavier  weight  of  the  new  pennies, 
which  would  reduce  the  required  total  of  precious  metal  proportionately 
below  30  tons  to  perhaps  6  tons  net,  and  also  reduce  the  number  of  coins 
in  question.  A  very  much  lower  estimate,  frankly  admitted  by  Dr 
Grierson  as  simply  the  intelligent  guesswork  which  even  the  best  of  such 
figures  is  bound  to  be,  put  the  total  of  Offa's  output  as  probably  not 
exceeding  a  million,  or  at  the  utmost,  two  million,  arguing  that  what 
really  controlled  the  supply  of  money  was  the  actual  demand  for  it.  Dr 
Grierson  also  expressed  some  doubt  as  to  whether,  outside  Kent, 
London,  East  Anglia  and  southern  England,  the  use  of  coinage  was  as 
yet  very  extensive  (1979  chapters  15  and  16). 

While  there  might  thus  be  considerable  room  for  argument  as  to  the 
quantity,  there  could  be  none  regarding  the  quality  of  Offa's  coinage  - 
and  even  with  regard  to  the  quantity  there  can  at  least  be  no  gainsaying 
that  it  had  shown  a  very  considerable  growth.  Indeed,  the  essential 
point  to  grasp  in  this  early  contest  in  trying  to  quantify  the  supply  of 
money,  is  not  the  differences  between  the  estimates,  but  rather  that,  for 
the  first  time  in  Anglo-Saxon  history,  the  quantities  involved  millions  of 
new  silver  pennies  rather  than  merely  thousands  or  tens  of  thousands  of 
'sceats'.  Each  of  these  new  pennies  would  command  values  much  higher 
than  we  might  at  first  assume.  Offa  was  undoubtedly  supplying  the 
necessary  currency  on  a  most  substantial  scale,  and  thus  laying  the 
foundations  of  a  money  economy.  Furthermore,  unlike  so  many 
previous  occasions,  the  substantial  growth  of  the  new  currency  was  not 
at  the  expense  of  the  quality  of  the  coinage.  In  short,  Offa's  place  in  the 
development  of  our  monetary  economy  has  been  aptly  summarized  by 
Sir  Albert  Feavearyear  thus:  'The  continuous  history  of  the  penny 
begins  with  the  coins  struck  by  Offa  (and)  the  history  of  the  English 
pound  begins  with  the  history  of  the  English  penny'  (1963,  7). 2  The 
ability  that  Offa  had  demonstrated,  of  rapidly  increasing  the  quantity 

2  See  also  D.  S.  Chick,  'Towards  a  chronology  for  Offa's  coinage',  The  Yorkshire 
Numismatist,  3,  1997. 



of  coins  of  a  superior  standard,  was  soon  to  be  repeated  by  later 
monarchs  in  minting  the  still  larger  quantities  of  money  needed  to  arm 
themselves  against  the  Vikings  and  in  their  vastly  expensive  attempts  to 
buy  them  off. 

The  Vikings  and  Anglo-Saxon  recoinage  cycles,  789-978 

Perhaps  the  most  telling  way  to  summarize  the  enormous  impact  of  the 
Vikings  on  English  monetary  development  is  to  state  the  simple  fact 
that  far  more  English  coins  have  been  found  in  Scandinavia  than  in 
England  relating  to  the  most  active  period  of  Viking  raids.  The  first  of 
these  raids  took  place  in  789,  shortly  before  the  death  of  Offa  in  the 
next  year.  The  first  raids,  such  as  those  on  Portland  in  789  and  on 
Lindisfarne  in  793,  were  small,  isolated  and  sporadic  affairs  but 
thereafter  they  grew  gradually  in  intensity  and,  beginning  with  the 
arrival  of  the  'Great  Host'  in  East  Anglia  in  865,  changed  their  nature  to 
permanent  invasion,  immigration  and  settlement.  As  a  result  of  this 
process  of  settlement  the  newly  coalescing  national  state  of  England 
again  became  divided,  into  a  roughly  northern  and  north-eastern 
'Danelaw',  and  a  more  or  less  independent  kingdom  of  central, 
southern  and  south-western  England.  The  two  kingdoms  lived  in 
uneasy  rivalry  with  each  other  until,  after  a  new  series  of  more  vicious 
raids,  a  stronger  national  unity  was  achieved  incorporating  the  whole  of 
England,  and  for  a  short  time  much  of  Scandinavia,  in  the  generation 
before  the  Norman  Conquest.  The  reunification  of  England  prior  to  its 
conquest  by  Gallicized  'Northmen'  from  the  south,  is  inseparably 
connected  with  the  story  of  its  coinage,  developments  in  the  latter 
shedding  considerable  light  on  the  course  of  the  more  or  less  continual 
armed  conflict,  or  costly  preparations  for  engaging  in  or  avoiding  such 
conflict,  in  the  period  between  789  and  1066. 

Although  no  part  of  Britain  remained  immune  from  Viking 
invasions,  whether  directly  from  Scandinavia  or  indirectly  from  Ireland, 
Scotland  or  France,  it  was  the  kingdom  of  Wessex  which  first  saved 
itself  and  then  acted  as  the  example  to  inspire  a  more  widespread 
resistance  without  which  all  England  would  have  been  submerged  by 
the  Danish  settlers.  It  is  for  this  reason  that  Alfred  is  usually  considered 
as  one  of  the  greatest  of  the  long  line  of  English  monarchs.  Effective 
defence  was  -  and  always  seems  to  be  -  a  most  costly  business, 
necessarily  involving  much  increased  minting  of  money.  Given  the 
mobility  of  the  Danes  on  land  as  well  as  at  sea,  Alfred  was  faced  with 
an  immense  problem.  He  first  reorganized  the  system  of  occasional 
levies  in  order  to  keep  an  army  reserve  constantly  in  the  field.  The 



unfortified  or  poorly  fortified  townships  which  had  previously  provided 
the  Danes  with  easy  pickings  were  repaired  or  fortified  for  the  first  time 
so  that  outside  the  Danelaw  there  was  built  a  ring  of  well-defended 
burghs  which  were  regularly  maintained  and  garrisoned.  Alfred's 
donations  to  the  Church,  his  generous  sponsorship  of  artists  and 
writers  and  his  constant  endeavours  to  improve  educational  standards, 
added  to  the  greatness  of  his  achievements  -  and  to  some  extent  to  the 
demands  for  finance.  There  is  good  reason  to  believe,  says  Stenton, 
'that  the  origin  of  the  burh  as  a  permanent  feature  of  a  national  scheme 
of  defence  belongs  to  the  reign  of  King  Alfred'  (1946,  289).  In  addition 
Alfred  earned  his  title  as  'father  of  the  English  fleet'  by  building  a 
number  of  large  ships  to  try  to  deny  to  the  Danes  their  previous 
maritime  supremacy. 

The  heavy  financial  burdens  required  to  support  his  improved  system 
of  national  defence  on  top  of  his  other  expenditures  were  very  largely 
met  by  payments  in  kind.  These  were  based  on  customary  assessments 
of  the  ability  of  the  locality  to  pay,  according  to  the  size  and  wealth  of 
the  community,  based  on  land  units,  the  smallest  for  such  tax  purposes 
being  the  'hide'.  In  course  of  time  the  hides  became  consolidated  into 
'half-hundreds'  and  'hundreds'.  The  exigencies  of  war  could  not  be  met 
by  simply  living  off  the  land,  but  in  addition  put  a  premium  on  liquidity, 
so  that  as  the  conflicts  with  the  Danes  increased  in  intensity,  so  did  the 
number  and  output  of  the  mints.  The  same  pressures  led  to  increased 
coinages  within  the  Danelaw  also,  with  the  London  mint,  for  instance, 
alternatively  active  under  both  Saxon  and  Dane.  The  fact  that  the 
Danelaw  generally  adopted  the  penny  as  their  unit  of  account  and 
means  of  payment  and  very  largely  used  the  same  mints  that  had 
previously  produced  the  coins  required  in  northern  England  made 
possible  much  commercial  exchange  in  the  peaceful  intervals  between 
armed  conflict.  However,  as  Professor  Loyn  has  shown,  the  antiquated 
'thrymsas'  in  Northumbria  and  the  Scandinavian  'oras'  in  much  of  the 
Danelaw  initially  created  'some  difficulty  in  achieving  a  satisfactory 
monetary  standard  in  the  new  Anglo-Scandinavian  world'  (1977,  128). 
However,  such  difficulties  were  relatively  short-lived  as  the  English 
pennies  issued  to  pay  increasing  tributes  of  Danegeld  flooded  the 

Alfred  began  the  process  of  increasing  the  number  of  mints  to  at  least 
eight,  most  of  these  being  within  the  protection  of  his  newly  fortified 
burghs,  such  as  Exeter  and  Gloucester.  In  addition,  the  older  mints  at 
Winchester,  Canterbury  and  London  were  pressed  into  more  active 
service,  producing,  as  well  as  the  standard  penny,  for  the  first  time  in 
English  history,  the  minting  of  a  halfpenny.  The  latter  custom  died  out 



after  Edgar's  reign  despite  the  fact  that  there  appeared  to  be  an 
appreciable  demand  for  halfpennies  as  being  more  convenient  than  the 
common  practice  of  having  to  cut  pennies  in  half.  That  such  a  demand 
existed  would  appear  to  have  been  proved  by  the  many  imitations  of 
Alfred's  halfpence  produced  primarily  in  the  Danelaw  where  their 
unofficial  minters  would  more  easily  escape  punishment.  Alfred  also 
minted  a  number  of  heavy  silver  coins  which,  according  to  Dolley  and 
Blunt,  are  'without  parallel  in  the  coinage  of  Western  Europe'  (Dolley 
1961,  77).  These  may  have  been  intended  as  'sixpences'  or,  possibly  as 
papal  payments;  hence  their  having  been  dubbed  'offering  pieces'  by  the 

Alfred's  successors,  including  especially  Athelstan  and  Edgar,  found 
it  necessary  to  increase  the  number  of  mints  still  further  in  order  to 
supply  the  increasing  demands  for  coinage  for  purposes  of  war,  tribute 
and  trade.  Both  Athelstan  and  Edgar  made  significant  contributions  to 
the  development  of  English  currency.  By  means,  partly  of  conquest  and 
partly  of  alliances,  Athelstan  (925-40)  managed  to  make  himself 
effective  overlord  of  all  England  and  of  the  greater  part  of  Scotland.  His 
achievements  in  this  direction  were  rather  overambitiously  celebrated  in 
a  coin  claiming  himself  as  'King  of  all  Britain'.  He  increased  the  number 
of  mints  to  thirty  and  continued  the  practice,  which  had  now  become 
more  of  a  necessity  than  a  convenience,  of  indicating  the  name  of  the 
mint  as  well  as  that  of  the  moneyer.  Obviously  the  increase  in  the 
number  of  mints  carried  with  it  a  danger  of  loss  of  royal  control  unless 
this  was  expressly  guarded  against. 

It  was  in  order  to  make  such  control  clear  and  explicit  that  Athelstan 
enacted  the  Statute  of  Greatley  in  928  specifying  a  single  national 
currency.  Such  a  national  currency  had  been  approached  from  the  days 
of  Offa.  Athelstan's  conquests  and  his  vision  combined  to  enshrine  the 
concept  in  law  and  to  confirm  the  importance  of  coinage  in  the  national 
system  of  taxes,  trade  and  tribute.  Thus  England  became  the  first  of  the 
major  countries  of  Europe  to  attain  a  single  national  currency  in  post- 
Roman  times.  However  the  renewed  incursions  of  the  Danes  postponed 
the  uninterrupted  establishment  of  this  principle  until  1066.  Even  so  the 
achievement  of  a  uniform  national  currency  in  England  preceded  that 
of  France  by  more  than  600  years,  and  of  Germany  and  Italy  by  nearly 
900  years:  a  factor  perhaps  in  Britain's  instinctive  reluctance  to  embrace 
a  single  European  currency  today. 

The  uniformity  declared  as  a  policy  objective  by  Athelstan  was 
brought  still  nearer  to  reality  by  Edgar's  thoroughgoing  reforms.  Edgar, 
959-75,  is  generally  known  as  the  Pacific  since  he  managed  to  preserve 
the  peace  unbroken  for  sixteen  years  -  no  mean  achievement  in  the 



circumstances.  In  financial  history  he  is  best  known  for  two  related 
features:  firstly  for  his  reform  of  the  nation's  coinage,  and  secondly  for 
setting  the  precedent  for  a  more  or  less  regular  cycle  of  recoinage,  both 
aspects  being  taken  up  more  thoroughly  by  later  rulers.  The  years  of 
unaccustomed  peace  appeared  to  be  highly  convenient  for  making  sure 
that  the  variety  of  silver  pennies  in  circulation  of  slightly  differing 
weights  and  considerably  differing  designs,  should  all  be  recalled  and  a 
new  uniform  currency  reissued.  For  this  purpose  Edgar  increased  the 
number  of  mints  by  the  year  973  to  forty  and,  by  carefully  controlling 
the  issue  of  dies  and  strictly  regulating  moneyers,  assured  a  coinage  of 
uniform  type  and  standard.  Having  once  achieved  uniformity,  he  soon 
saw  that  it  would  be  necessary  to  repeat  the  operation  from  time  to 
time,  and  this  for  four  main  purposes:  first  to  ensure  that  the  quality  of 
the  coinage  was  maintained;  secondly  to  enforce  his  express  'legal 
tender'  order  that  'no  one  was  to  refuse  acceptance';  thirdly  to  benefit 
from  the  profits  associated  with  reminting;  and  fourthly  to  assert  the 
royal  prerogative  over  minting  and  prevent  unauthorized  competition. 
It  may  well  not  have  been  Edgar's  original  intention  in  973  to  institute  a 
regular  six-year  cycle  of  recoinage  but  in  fact  such  a  cycle  ensued, 
becoming  shortened  to  three  years  or  less  by  a  number  of  subsequent 
monarchs,  who  greedily  milked  its  fiscal  benefits  to  the  utmost. 

Danegeld  and  heregeld,  978—1066 

Aethelred  IPs  long  and  unhappy  reign  (978-1016)  began  inauspiciously 
with  the  murder  of  his  half-brother  Edward  and  the  renewal  of  Danish 
invasions  on  a  gradually  increasing  scale.  His  name,  literally  'noble 
advice',  went  so  ill  with  his  character  that  he  became  known,  with  sick 
humour,  as  the  Unready,  from  his  stubborn  refusal  to  take  good 
counsel.  He  was  not  of  course  the  first  to  attempt  to  buy  off  the  Danes, 
but  his  reign  marks  the  climax  of  this  self-defeating  policy.  He  already 
possessed  an  administrative  and  financial  machine  able  to  deliver 
promptly  the  vastly  increasing  tributes  demanded.  An  instance  of  this 
took  place  in  991  when  he  paid  over  to  the  leader  of  the  Danish  invaders 
some  22,000  pounds  of  gold  and  silver,  in  addition  to  payments  already 
made  by  local  rulers.  When  it  seemed  as  if  peace  might  at  last  be 
possible,  he  ordered  the  massacre  of  all  Danish  men  in  England  on  St 
Brice's  Day,  13  November  1002.  Although  his  orders  were  only  partially 
obeyed,  their  obvious  effect  was  to  strengthen  Scandinavian  determina- 
tion to  conquer  all  England. 

To  meet  this  threat  Aethelred  relied  rather  more  on  the  power  of  his 
seventy-five  mints  than  on  his  army  or  navy.  Edgar's  'invention'  of 



regular  recoinages  was  now  put  into  full  effect  by  Aethelred  who 
introduced  seven  changes  of  coinage  type  in  his  38-year  reign.  When 
coupled  with  a  not-too-obvious  reduction  in  the  weight  of  the  penny 
this  policy  enabled  the  number  of  coins  in  circulation  to  be  increased 
and  yet  be  accepted  internally  at  face  value.  At  the  same  time  'by 
devaluing  the  penny  in  relation  to  its  continental  (bullion)  rate,  the 
government  was  able  to  discourage  imports,  encourage  exports, 
improve  the  balance  of  trade  and  cause  silver  to  flow  into  the  country' 
(Dolley  1961,  154).  With  so  many  mints  operating  throughout  the 
country  no  man  outside  the  Danelaw  had  to  travel  more  than  about 
fifteen  to  twenty  miles  to  find  a  mint  to  change  his  old  for  new  coins. 
Simply  to  pay  the  Danegeld  Aethelred  had  to  coin  nearly  forty  million 
pennies.  Of  some  ninety  known  mints,  as  many  as  seventy-five  were  in 
use  at  the  same  time. 

Since  a  considerable  proportion  of  these  coins  naturally  found  their 
way  to  Denmark,  Norway  and  Sweden,  it  might  at  first  appear  that 
England  itself  would  have  become  practically  drained  of  coins  -  but  for 
a  number  of  good  reasons  this  was  not  so.  The  speed  with  which 
Danegeld  was  paid  certainly  meant  that  a  proportion  of  the  payments 
was  almost  certainly  passed  straight  on  after  being  collected  by  taxes 
without  any  recoinage  being  involved.  Yet  the  total  quantity  of  money 
remaining  in  circulation  in  England  appears  to  have  been  just  as  large  at 
the  end  of  the  period  of  most  rapid  Danegeld  payments  between  980 
and  1014  as  in  the  beginning,  although  no  doubt  there  were 
considerable,  if  temporary,  regional  imbalances  of  surpluses  and 
deficits  from  time  to  time.  However,  recent  authoritative  research 
confirms  that  'in  the  long  run  virtually  all  the  silver  that  went  out  of 
England  as  Danegeld  was  matched  by  similar  quantities  that  had  come 
in  from  overseas'  (Metcalf  1980,  21).  Despite  the  repeated  and 
intermittent  wars,  trade  was  substantial,  steadily  increasing  and,  for 
reasons  already  indicated,  favourable  to  Britain,  allowing  a  consider- 
able influx  of  silver  from  the  Continent.  European  silver  was  in  any  case 
becoming  more  plentiful  since  a  large  new  silver  mine  was  opened  at 
Rammelsberg  in  Germany's  Harz  Mountains.  Its  output  became 
diffused  by  trade  and  mercenary  payments  all  over  northern  Europe. 
According  to  Professor  Sawyer  'the  location  of  the  main  English  mints 
is  consistent  with  the  hypothesis  that  the  main  economic  activity  lay  in 
the  east  and  that  the  silver  came  from  abroad'  (1978,  233).  A  vast 
recycling  operation  was  thus  taking  place  in  northern  Europe  during 
the  last  half  of  the  tenth  and  first  half  of  the  eleventh  century,  with 
tribute  being  the  major  component  in  the  first  period  but  with  trade 
becoming  increasingly  important  in  the  second.  In  1012  Aethelred 



raised  additional  taxes  payable  in  coinage  and  specifically  earmarked 
for  paying  mercenaries  to  man  a  new  fleet  of  ships  and  a  larger  army,  its 
military  purposes  being  clearly  indicated  in  its  description,  the 
'heregeld',  literally  'army-debt'.  This  nationwide  tax,  'yielding  perhaps 
£5000-£6000,  was  a  powerful  means  of  drawing  cash  out  of  every 
village'  (Metcalf  1980,  23).  However,  Aethelred's  reign  was  effectively 
drawing  to  a  close,  since  in  1013  he  was  forced  to  seek  refuge  in 
Normandy,  where  after  further  ineffectual  battles  and  intrigues,  he  died 
in  1016.  The  concept  of  the  heregeld  did  not  however  die  with  him  but 
was  put  to  more  effective  use  by  his  successor. 

Cnut  (1016-1035)  first  paid  off  his  vast  invasion  army  and  fleet,  but 
maintained  a  standing  army  in  England  while  he  expanded  his 
Scandinavian  empire,  the  handy  and  prolific  heregeld  being  again  used 
for  this  purpose.  Since  the  disbanding  of  the  invasion  force  alone  cost 
some  twenty  million  pence,  the  mints  were  almost  as  active  from  time 
to  time  under  Cnut  as  they  had  been  under  Aethelred.  The  pressures  on 
the  mints  from  the  necessity  of  producing  the  vast  coinages  associated 
with  repeated  Danegeld  and  heregeld  payments  led  to  successive 
reductions  in  the  average  weight  of  the  penny,  from  a  high  weight  of  27 
grains  at  the  beginning  of  the  tenth  century  to  18  grains  in  the  early 
eleventh  century.  After  the  heregeld  was  (temporarily)  abolished  in  1051 
the  penny  regained  a  weight  of  21  grains.  It  was  obviously  increasingly 
difficult  to  maintain  the  customary  high  standard  of  the  English  penny 
during  the  first  half  of  the  eleventh  century. 

On  his  accession  Cnut's  declared  intention  was  to  rule  the  reunited 
England  according  to  its  customary  laws,  and  he  used  the  efficient 
existing  embryo  English  civil  service  for  this  purpose.  Later,  in  a  letter 
from  Rome  to  his  English  subjects,  he  claimed,  'I  have  never  spared,  nor 
will  I  ever  spare,  myself  or  my  labour  in  taking  care  of  the  needs  of  my 
people'  -  a  promise  that  he  carried  out  to  an  extent  such  as  to  justify  his 
appellation,  'the  Great'.  His  similarity  to  Alfred  may  be  seen  in  his 
encouragement  of  education,  his  generous  endowment  of  churches,  his 
draining  of  the  fens,  and  his  building  of  bridges.  Trade  expanded 
considerably  under  his  'free-trade  empire'  which  extended  over  most  of 
Ireland,  Scotland,  England  and  Scandinavia,  and  accounted  for  a  rising 
proportion  of  the  still  growing  demand  for  coinage.  The  more  settled, 
peaceful  conditions  of  his  reign  allowed  a  greater  concentration  of  mint 
output  in  the  seaports  bordering  the  North  Sea,  so  that  over  50  per  cent 
of  the  total  coinage  produced  in  England  was  minted  in  London,  York 
and  Lincoln.  Numismatic  evidence  for  this  period  is  derived  mainly  from 
Scandinavia  rather  than  from  Britain,  with  the  mint  marks  enabling  us 
to  assess,  approximately  at  least,  the  rate  of  activity  of  the  various  mints. 



The  information  given  by  these  Scandinavian  hoards  is  of  a  mixture  of 
English  coins  of  various  types  usually  found  together  with  coins  from 
France,  Germany  and  Scandinavia.  If  the  English  coins  found  in  these 
hoards  had  been  merely  the  result  of  the  massive  Danegelds  they  would 
most  probably  not  have  been  so  varied  but  would  have  consisted  more  of 
long  runs  of  uniform  issues.  The  actual  degree  of  variation  and 
admixture  is  held  by  most  authorities  to  indicate  trade,  rather  than 
plunder  or  tribute,  as  the  usual  source  of  such  hoards,  even  if  the  original 
cause  of  issue  may  admittedly  have  been  tribute  or  plunder.  Modern 
numismatic  researches  would  therefore  appear  to  confirm  the  views  of 
those  earlier  historians  like  Sir  Charles  Oman  and  of  later  authorities 
like  Professor  Sawyer  that  trade  flourished  whenever  peaceful  oppor- 
tunities occurred.  Thus  according  to  Oman  'the  immense  quantities  of 
Cnut's  silver  pennies  that  survive  bear  witness  to  active  trade  .  .  .  there  is 
every  sign  that  by  the  time  his  reign  ended  the  whole  land  was  in  a  very 
flourishing  and  satisfactory  condition'  (1910,  601). 

The  death  of  Cnut  in  1035  saw  the  break-up  of  his  empire  and  a  new 
period  of  political  and  financial  confusion.  The  24-year  rule  of  Edward 
the  Confessor  (1042-66)  failed  to  restore  the  stability  enjoyed  under 
Cnut.  Edward  appeared  to  have  instigated,  or  at  least  allowed,  a  rare 
case  of  debasement  in  1048  when  the  normally  pure,  if  sometimes 
lightweight,  silver  penny  contained  an  admixture  of  zinc  and  copper. 
The  moneyers  were  kept  almost  as  busy  as  ever  with  seventy  mints  active 
and  ten  separate  coin-types  issued  during  his  reign,  again  confirming 
that  the  six-year  cycle  of  Edgar  had  been  reduced  for  fiscal  reasons  to 
somewhat  less  than  three  years.  His  efficient  administrators  saw  that  his 
life's  ambition,  to  build  a  new  church  at  Westminster,  was  completed 
just  before  his  death.  The  same  efficient  civil  service  then  became  busy 
issuing  the  new  dies  for  the  new  coins,  designed  for  Harold  II,  which 
were  being  produced  by  forty-five  mints  as  he  marched  around  the 
country  during  his  brief  reign,  from  his  victory  at  Stamford  Bridge  to  his 
defeat  at  Hastings.  'Perhaps  nothing  shows  more  eloquently  than  this 
the  degree  of  efficiency  which  the  royal  administration  had  by  now 
attained  in  its  central  control  of  the  wide  net-work  of  English  mints' 
(Sutherland  1973,  39).  The  contrast  with  England's  coinless  economy  of 
the  Dark  Ages  could  hardly  be  more  complete. 

The  Norman  Conquest  and  the  Domesday  Survey,  1066-1087 

Traditionally  the  Battle  of  Hastings  has  rightly  been  seen  as  one  of  the 
great  turning  points  of  British  history,  although  long  familiarity  with 
this  old-fashioned  view  has  recently  bred  a  degree  of  critical  contempt. 



To  all  intents  and  purposes  the  millennium  of  invasions  which  had 
disrupted  Britain  before  the  Norman  Conquest  was  now  ended  and, 
with  just  a  few  relatively  minor  exceptions,  Britain  thereafter  has 
remained  free  of  foreign  invasions.  Peace  within  the  country  was, 
however,  very  much  more  difficult  to  achieve.  Rebellions,  baronial  and 
civil  wars,  minor  skirmishes  of  all  sorts  remained  sufficiently 
widespread  to  engender  recurrent  feelings  of  insecurity  among  the 
people  for  some  500-600  years  after  1066.  A  price  had  to  be  paid  for 
freedom  from  the  perilous  insecurities  of  war,  whether  external  or 
internal,  this  price  being  the  restrictive  formalization  of  the  system  of 
land  ownership,  work,  tithes  and  taxes  known  as  feudalism.  Although 
the  Norman  Conquest  resulted  in  a  strengthening  of  an  already  nascent 
feudalism  in  England,  it  did  not  originate  it,  for  a  number  of  its  most 
distinctive  elements  had  already  been  developing  in  the  century  or  so 
before  1066.  The  Conquest  did  usher  in  a  far  more  complete,  a  far  more 
standardized  system  of  feudalism,  especially  in  a  legalistic,  political  and 
administrative  sense,  than  had  previously  existed  in  England  and  it  did 
so  at  a  considerably  faster  pace  than  would  probably  have  taken  place 
had  Harold,  rather  than  William,  been  the  victor  on  14  October. 

To  William  it  seemed  of  vital  importance  to  the  legality  of  his  claim 
(to  be  the  rightful  ruler  of  England)  to  date  his  accession  as  having 
taken  place  on  Friday  13  October,  the  day  before  victory.  This 
apparently  trivial  point  indicated  the  thoroughness  of  the  Norman 
approach  to  legal  matters.  The  Conquest  provided  the  opportunity, 
seen  by  William  also  as  an  absolute  necessity,  of  reinforcing  his  legal 
authority  by  insisting  that  all  his  vassals  should  formally  retake  their 
oaths  of  allegiance  in  the  course  of  which  their  rights,  feus  and  duties 
were  more  clearly  and  explicitly  defined.  The  legal  and  administrative 
forms  of  feudalism  were  more  advanced  in  Normandy  than  in 
contemporary  England,  and  it  was  therefore  natural  that  the  influx  of 
Norman  rulers  would  bring  with  them  their  more  ingrained  and  more 
explicitly  legalized  new  attitudes  and  habits.  Furthermore,  after  the 
Conquest  -  and  more  especially  after  William's  devastating  harrowing 
of  the  North  following  a  series  of  rebellions  between  1069  and  1071  - 
there  was  no  danger  of  any  revival  of  the  division  of  England  into  two 
nations,  the  Anglo-Saxon  and  the  Danelaw.  The  Norman  Conquest 
therefore  meant  that  England  never  again  became  divided 
geographically  but  was  united  in  a  far  more  common  form  of 
administration  than  had  previously  been  the  case  -  although  the 
Norman  system  was  in  fact  modified  in  various  ways  by  the  survival  of 
Anglo-Danish  institutions.  Nevertheless  there  is  considerable  truth  in 
the  view  that  the  Normans  transformed  England  from  a  vague  and  still 



somewhat  divided  feudal  society  into  an  administratively  integrated 
feudal  system. 

Whereas  military  and  political  changes  can  take  place  suddenly,  and 
while  administrations  can  also  on  occasions  be  modified  relatively 
quickly,  changes  in  the  economic  life  of  a  nation  are  generally 
impossible  to  achieve  except  by  a  process  of  relatively  slow  evolution, 
particularly  when,  as  was  the  case  throughout  the  Middle  Ages,  the 
great  mass  of  the  people  worked  on  the  land.  For  them  the  Conquest 
appeared  at  first  to  be  almost  irrelevant,  and  continuity,  rather  than 
change,  best  sums  up  their  situation.  However,  given  the  greater 
formalization  of  land  ownership  and  of  feudal  duties,  and  also  given  the 
diffusion  of  coin-using  habits,  the  impact  of  the  new  Norman  system  of 
administration  gradually  affected  life  in  the  rural  areas  as  well  as  in  the 
towns.  Since  coinage  was  such  a  personal  prerogative  of  royalty, 
William  had  the  undoubted  power  of  bringing  about,  had  he  so  wished, 
the  kind  of  drastic  changes  in  England  that  he  had  already  made  in 
Normandy,  where  the  profits  derived  from  his  debasement  of  the 
coinage  had  helped  to  finance  the  invasion  of  England.  However 
William  saw  the  wisdom  of  taking  the  advice  offered  to  him  by  his 
feudal  council  that  he  should  resist  the  temptation  of  debasing  his 
English  coinage,  especially  when  the  finance  sacrificed  thereby  was 
more  than  made  up  by  the  imposition  of  a  new  tax,  in  the  usual  form  of 
a  land  tax,  promised  expressly  to  avoid  debasement.  Subsequently, 
throughout  the  Middle  Ages  the  English  monarchy  maintained  the 
quality  of  its  silver  coins  to  a  far  higher  degree  than  was  the  case  with 
most  continental  coinages,  though  whether  this  was  the  unmixed 
blessing  it  is  often  assumed  to  be  will  be  debated  later. 

We  are  of  course  enormously  indebted  to  William  I  for  the  most 
complete  record  of  national  wealth  and  national  income  undertaken  by 
any  country  in  the  Middle  Ages  -  the  'Description  of  England'.  This 
was  ordered  by  William  and  his  Great  Council  at  Gloucester,  Christmas 

1085.  The  whole  of  the  comprehensively  detailed  survey  was  carried  out 
with  such  thoroughgoing  vigour  that  it  was  completed  by  the  end  of 

1086.  The  summaries  of  these  incredibly  detailed  statistics  were 
collected  in  a  few  volumes  (two  major  volumes  plus  a  few  regional 
summaries,  e.g.  for  Exeter,  Cambridge  and  Ely),  which  soon  came  to  be 
known  as  Domesday  (or  Doomsday)  Book,  so  called  because  there 
could  be  no  appeal  against  such  an  authoritative,  meticulously  detailed 
and  publicly  corroborated,  quantitative  and  qualitative  survey.  As  the 
ordered  description  of  a  national  economy  it  is  unique  among  the 
records  of  the  medieval  world'  (Stenton  1946,  648).  With  two 
unfortunate  and  major  exceptions,  namely  the  four  northern  counties 



of  Northumberland,  Durham,  Cumberland  and  Westmorland,  much  of 
which  had  been  devastated  by  William  himself  and  therefore  had  little 
to  contribute  to  his  coffers,  and  the  towns  of  London  and  Winchester, 
the  wealth  of  which  may  already  have  been  well  known,  information 
was  collected  from  every  county,  town,  hundred  and  village. 

The  investigation  was  conducted  by  commissioners,  assisted  by  the 
king's  representative  or  'reeve'  in  every  shire  -  the  sheriff  -  together 
with  juries  selected  locally.  The  survey  was  thus  a  combination  of  a 
legal,  demographic  and  most  importantly  financial,  fiscal  and 
economic  investigation  whereby  the  position  and  numbers  of  the  more 
important  persons  were  described,  and  the  output  and  taxable  capacity 
of  the  kingdom  were  evaluated.  Altogether  some  283,242  persons  were 
mentioned  in  the  survey,  which  would  give  an  estimated  total 
population  of  between  about  1,375,000  as  a  minimum  and  about 
1,500,000  as  a  maximum.  It  counted  all  farm  livestock  (such  as  cattle, 
sheep,  pigs,  etc.),  the  acreage,  potential  and  actual  yield  of  the  arable 
lands,  the  number  and  ownership  of  plough-teams,  other  'capital' 
equipment  such  as  productive  woodlands,  fish  ponds,  beehives  and  so 
on.  'Not  a  single  hide,  not  one  virgate  of  land,  not  even  one  ox,  nor  one 
cow,  nor  one  pig,'  says  the  Anglo-Saxon  Chronicle,  'escaped  notice  in 
this  survey'  In  towns,  which  were  already  of  considerable  importance  in 
Norman  times,  the  smithies,  bakeries,  breweries,  markets,  fords,  mills 
and  royal  mints,  were  all  meticulously  recorded.  The  yield  from  tolls, 
taxes  and  fines  of  various  kinds  were  all  carefully  aggregated. 

No  other  European  state  at  that  time  possessed  such  a  sound  basis 
for  fiscal  and  financial  assessment  (what  today  we  would  call 
'budgeting'),  or  for  supplying  the  means  for  reasonably  efficient  and 
equitable  decisions  regarding  taxation,  coinage  and  farm  management, 
which  were  then  the  main  ingredients  of  monarchical  economic  policy. 
The  king  could  now  know  with  a  degree  of  certainty  whether  he  was 
pressing  too  hard  on  some  localities,  the  taxable  capacity  of  which  had 
fallen,  or  too  lightly  on  others,  the  taxable  capacity  of  which  had  risen. 
There  are  numerous  examples  of  such  adjustments,  no  doubt  rough  and 
ready  but  nevertheless  significant,  having  been  made  on  the  basis  of  the 
Domesday  evidence.  Here  again  the  Normans  created  a  national  system 
of  taxation  on  the  foundations  of  the  various  regional  systems  which 
had  been  previously  developed  by  the  Anglo-Saxons  and  Danes  so  that, 
as  in  coinage,  England  was  probably  the  first  post-Roman  state  in 
western  Europe  to  develop  a  uniform  nationwide  fiscal  system. 

The  king's  finances  were  derived  mainly  from  five  sources:  first, 
directly  from  the  proceeds  of  his  own  estates,  the  'Crown  lands'; 
secondly,   from   regular   customary   and   therefore  normally  fixed 



payments  made  by  the  shires  and  boroughs;  thirdly,  from  the  fines  and 
other  fluctuating  profits  resulting  from  the  maintenance  of  justice; 
fourthly,  the  mostly  arbitrary  profits  from  issuing  the  king's  dies  and 
minting  the  king's  coins;  and  fifthly,  in  order  to  meet  exceptional 
expenditures,  a  general  tax  on  land,  the  'geld',  of  which,  as  we  have 
seen,  the  Danegeld  and  heregeld  were  the  most  famous  examples.  It 
follows  that  the  greater  the  yield  of  the  first  four  sources,  the  fewer  and 
the  less  heavy  would  be  the  exceptional  gelds.  Despite  his  improved 
administration,  William  himself  found  it  necessary  to  levy  five  gelds 
during  his  21-year  reign.  Because  the  gelds  were  usually  very  heavy  and 
were  paid  in  cash,  they  had  a  close  relationship  with  the  demand  for 
coinage.  Furthermore  it  becomes  clear  that  only  an  efficient  tax- 
gathering  system  could  guarantee  that  the  quality  of  English  coinage 
would  be  maintained  -  an  early  English  example  of  how  fiscal  and 
monetary  policies  are  necessarily  interwoven. 

Domesday  Book  gives  a  detailed  picture  of  the  basis  on  which  the 
gelds  were  assessed.  Although  the  details  vary  from  region  to  region  the 
most  common  basis  for  assessment  was  the  'hide'.  Originally  the  hide 
comprised  an  amount  of  land  which  one  team  of  eight  oxen  could 
manage  to  plough  in  a  season,  an  amount  which  naturally  varied  as 
between  hill  and  dale,  light  or  heavy  soils.  Long  before  the  Conquest 
the  hide  had  become  standardized  at  about  120  acres.  One  of  the 
motives  generally  held  to  have  given  rise  to  the  survey  was  to  discover 
hidden  'hides'  in  order  to  give  a  clearer  picture  of  taxable  capacity  and 
to  reduce  tax  evasion.  For  tax  farming  purposes  the  hides  in  each 
'hundred'  were  grouped  into  fives  or  tens,  except  that  in  the  customary 
Danelaw  regions  the  old  'wapentakes'  were  divided  into  districts, 
roughly  comparable  with  the  'hundred',  and  further  subdivided  into 
blocks  of  a  dozen  or  half-dozen  hides.  In  fiscal  affairs  therefore  the 
Domesday  survey  showed  that  the  Normans  continued  to  use  the 
Anglo-Saxon  and  Danish  customary  dues  and  assessments  and 
gradually  modified  them  into  a  uniform  national  system.  The  output  or 
yield  of  each  locality  investigated  by  the  survey  was  given  for  the  year  of 
the  Conquest  and  for  the  year  of  the  survey,  so  that  a  picture  of  local 
growth  or  decline,  and  an  aggregate,  if  vague,  glimpse  of  what  we  might 
describe  as  'national  income  growth'  over  a  twenty-year  period  may  be 
derived  from  the  Domesday  evidence.  As  well  as  those  two  base  and 
reference  dates,  the  income  and  output  of  a  series  of  different 
intermediate  dates,  namely  whenever  the  land  concerned  changed  its 
feudal  ownership,  was  also  given.  All  in  all,  the  actual  and  the  potential 
revenue  of  the  land  available  for  the  use  of  the  king's  government  was, 
among  a  wealth  of  other  details,  provided  for  the  first  time  in  the 



history  of  Britain,  a  legacy  available  for  use  for  two  or  three  centuries 
by  William's  successors.  Having  thus  standardized  the  fiscal  system  it 
was  therefore  all  the  more  appropriate  to  standardize  the  monetary 
system  also:  a  task  easier  said  than  done. 

The  pound  sterling  to  1272 

So  far  as  the  penny,  and  therefore  the  pound  also,  were  concerned  the 
Norman  Conquest  spelt  continuity  rather  than  change,  and  stability 
rather  than  revolution.  Apart  from  introducing  a  number  of  Norman 
moneyers,  especially  Otto  the  Goldsmith  as  chief  moneyer  and  die 
master,  no  alterations  of  substance  were  made  to  English  coinage 
during  the  reigns  of  the  first  two  Williams  (1066-1100),  except  that 
during  the  reign  of  William  I  the  weights  of  the  penny  were  if  anything 
higher  on  average  and  less  variable  than  were  those  issued  in  the 
generation  before  the  Conquest.  Some  thirteen  different  coin  types  were 
issued,  eight  ascribed  to  William  I  and  five  to  William  II,  thus  indicating 
that  the  average  pre-Conquest  cycle  of  between  two  and  three  years 
between  recoinages  was  being  imitatively  followed,  a  royal  custom  that, 
with  some  interruptions  during  the  anarchy  of  Stephen  and  Matilda, 
was  maintained  until  about  a  century  after  the  Conquest,  that  is  until 
the  coinage  reform  and  the  ending  of  the  regular  series  of  short  cycles 
brought  about  by  Henry  II  in  1158.  William  I  is  known  to  have  operated 
fifty-seven  mints,  details  of  over  fifty  of  which  are  given  in  the 
Domesday  survey.  The  survey  shows  how  the  privilege  of  minting  was 
costly  for  the  operators  but  lucrative  for  the  king.  As  Sir  John  Craig 
shows,  the  average  payment  exacted  by  the  king  was  £1  per  annum  for 
each  moneyer,  with  an  extra  £1  payable  every  time  the  coin  design  was 
changed,  that  is,  at  least  every  three  years  (Craig  1953,  20).  On  average 
each  mint  town  had  three  moneyers,  but  some  had  ten  or  more.  William 
II  similarly  made  use  of  fifty-eight  mints,  including  a  new  mint  at 
Totnes.  In  both  reigns,  given  the  average  31-month  cycle,  the  mints  were 
kept  busy  most  of  the  time.  It  was  obviously  a  lucrative  business,  dear  to 
the  heart  of  the  monarch,  and  also  to  any  counterfeiter. 

The  high  quality  established  by  William  I  and  generally  maintained 
by  William  II  fell  away  drastically  during  the  long  reign  of  Henry  I 
(1100-35),  and  even  more  so  in  the  short  'reign',  if  it  can  be  called  that, 
of  Stephen  (1135-54).  Henry  I  introduced  fifteen  new  types  in  his  35- 
year  reign,  thereby  reducing  the  coinage  cycle  from  the  previous  level  of 
thirty-one  months  to  about  twenty-eight.  With  the  rare  exception  of 
one  or  two  of  these  types  they  were  of  extremely  poor  quality  and  were 
therefore  more  easily  clipped  and  copied.  Most  of  Henry's  coins  were 



impure,  light  in  weight  and  of  execrable  workmanship.  Among  the 
reasons  given  for  this  decline  in  quality  are,  first  an  influx  of  poor 
quality  'pennies'  from  the  Continent  which  made  it  easier  at  first  to 
accept  lower-quality  indigenous  issues.  Secondly,  the  death  of  Otto  the 
Goldsmith  removed  from  the  scene  the  favourite,  most  strict  and  most 
widely  travelled  mint-master  upon  whom  the  first  two  Williams  had 
relied  in  keeping  not  only  the  London  but  also  the  provincial  mints  up 
to  scratch.  Henry  did,  however,  attempt  two  major  reforms,  though 
their  beneficial  results  were  short-lived.  The  first,  in  1108,  included 
plans  for  issuing  halfpennies,  but  the  inadequate  cost  allowance  made 
to  moneyers  for  producing  two  coins  together  equal  in  value  to  the  age- 
old  single  penny  coin  inhibited  their  production.  The  issue  flopped,  and 
only  one  such  coin  appears  extant  in  today's  collections. 

So  impure  was  the  current  coin  and  so  untrustworthy  were  the  mints 
that  it  had  become  the  widespread  custom  to  cut  a  small  snick  into  the 
coin  in  order  to  test  whether  it  was  genuine  silver  through  and  through 
or  only  silver-plated.  This  then  led  Henry  to  the  ridiculous  decision  in 
1112  to  make  an  official  snick  extending  to  almost  half  the  diameter  of 
all  his  coins  before  they  were  issued,  though  this  official  idiocy  was 
happily  not  carried  into  the  subsequent  revisions.  By  1124  the  quality  of 
all  the  existing  coins  had  again  deteriorated  so  much  that  the  English 
Chronicle  tells  of  someone  who  managed  to  secure  acceptance  of  only 
twelve  of  the  nominal  pound's  worth  of  240  coins  that  he  took  to 
market.  Public  confidence  having  been  completely  destroyed,  the  king 
looked  for  a  public  scapegoat.  All  the  mint-masters  in  the  kingdom, 
then  numbering  between  180  and  200,  about  the  same  number  that 
operated  in  William  the  Conqueror's  day,  were  summoned  to  the  Assize 
of  Winchester,  on  Christmas  Day  1124,  and  a  number  of  them  —  some 
accounts  give  a  total,  probably  exaggerated,  of  ninety-four  -  were 
punished  by  having  their  right  hands  chopped  off.  (At  least  they  were 
spared  the  stiffer  penalties  of  being  blinded  or  castrated  or  both,  which 
were  occasionally  administered.)  Even  this  drastic  remedy  produced 
only  a  temporary  improvement,  with  the  last  three  issues  of  Henry's 
reign  being  as  bad  as  ever. 

The  bitter  and  destructive  Civil  War  during  1138  to  1153  between  the 
rival  supporters  of  Stephen  and  Matilda  made  an  already  bad  situation 
even  worse.  'It  was  the  only  time  in  English  history  that  the  royal 
prerogative  of  coining  money  was  set  at  nought  by  powerful  barons' 
who  issued  their  own  currencies  and  so  contributed  to  the  downward 
slide  in  the  general  quality  of  the  coinage  (Thompson  1956,  xxix). 
Whereas  the  blurred  inscriptions  of  Henry's  coinage  had  been  the  result 
of  shoddy  workmanship,  in  the  case  of  a  number  of  rival  minters  in  the 



Civil  War  the  blurring  was  apparently  intentional,  to  avoid  identi- 
fication and  so  escape  punishment  from  the  other  side.  Even  some  of 
the  better-quality  coinage  was  deliberately  and  literally  defaced  when, 
following  a  quarrel  between  Stephen  and  the  pope,  a  number  of  mints 
issued  coins  with  two  ugly,  indented  lines  across  Stephen's  head.  The 
use  of  coins  as  propaganda  in  warfare  was  obviously  not  a  lost  art. 

The  breakdown  in  the  usual  channels  of  distribution  of  bullion  to  the 
mints  during  the  Civil  War  made  local  mints  much  more  dependent  on 
local  supplies  and  so  stimulated  production  from  the  silver-lead  mines 
of  the  Mendips  which  supplied  Bristol,  Exeter,  Gloucester  and  other 
mints  in  the  south-west.  The  Derby,  Nottingham  and  Lincoln  mints 
were  similarly  supplied  by  the  mines  at  Bakewell  in  the  Peak  District, 
while  silver  and  lead  mines  at  Alston  in  Cumberland  supplied  the 
Carlisle  mint.  The  fact  that  speed  of  production  during  the  wars  was 
more  important  than  the  degree  of  refinement  of  the  ore  played  its  part 
in  the  drastic  fall  in  the  metallic  purity  of  the  coinage  and  in  the  poor 
quality  of  the  minting.  The  financial  history  of  the  first  half  of  the 
twelfth  century  exposed  the  myth  of  the  superior  administrative  skills 
of  the  Norman  rulers  and  gave  fresh  and  forceful  evidence  of  the 
insecurity  of  life  in  Anglo-Norman  England  and  the  dangerously 
fissiparous  proclivities  of  its  barons.  The  efforts  of  the  first  two 
Williams  to  unite  the  country  and  to  maintain  the  quality  of  its  coinage 
seemed  to  have  been  all  in  vain.  For  the  ordinary  person  in  the  many 
regions  of  Britain  afflicted  by  the  'harrowing  of  the  North'  and  the 
arbitrary  terror  of  the  barons  during  the  Civil  War  the  Norman 
Conquest  might  have  seemed  more  like  a  relapse  into  barbarism  than  a 
step  forward  into  a  new,  orderly,  well-administered  feudal  system.  Yet, 
within  a  relatively  few  years,  Henry  II  (1154-89)  had  restored  the 
prestige  and  unity  of  the  kingdom,  greatly  strengthened  its  finances, 
and  raised  the  quality  of  its  coinage  in  such  a  way  as  to  render 
unnecessary  the  costly  revisionist  cycles  that  had  typified  England's 
financial  history  for  over  two  centuries. 

Henry's  first  task  was  to  restore  royal  power  by  destroying  the 
unauthorized  or  'adulterine'  castles  that  had  sprung  up  during  the  Civil 
War,  and  similarly  by  closing  down  a  number  of  the  provincial  mints 
that  had  previously  supported  baronial  independence.  Because  of  his 
quarrels  with  the  Papacy,  and  especially  with  Thomas  a  Becket,  a 
number  of  ecclesiastical  mints  including  those  of  Durham,  Bury  St 
Edmunds  and  Canterbury  ceased  operating  for  a  number  of  years.  Each 
time  Henry  closed  down  a  provincial  mint  he  strengthened  the  relative 
and  absolute  importance  of  the  London  mint  and  hastened  the  process 
of  concentrating  the  bulk  of  money  making  within  the  Tower  of 



London.  Furthermore  by  doing  away  with  the  triennial  revision  he  had 
no  need  to  reverse  his  policy  of  reducing  the  number  of  mints  but  could 
more  easily  manage  to  maintain  a  steadier  output  of  coins  from  his 
smaller  total  number  of  mints,  except  on  the  two  occasions  when  he 
carried  out  a  general  replacement  of  the  whole  currency,  that  is  in  1158 
and  1180,  using  some  thirty  and  eleven  mints  respectively.  Apart  from 
those  two  occasions  he  usually  managed  with  half  a  dozen  mints,  with 
London  always  being  predominant.  He  further  centralized  his  political 
and  financial  control  of  his  English  kingdom  by  reorganizing  and 
strengthening  the  authority  of  his  sheriffs  in  every  county.  His  legal  and 
financial  reforms  went  hand  in  hand,  assuring  him  of  a  more  certain 
income,  with  fewer  leakages  than  formerly,  from  the  various  fines,  dues, 
customs,  taxes  and  crown  estate  revenues,  uninterrupted  by  civil  strife. 
Little  wonder  that  it  was  in  this  period  that  the  first  detailed  description 
of  the  administration  of  the  English  Treasury,  the  Dialogus  de 
Scaccario,  and  the  first  comprehensive  treatise  on  English  law,  the 
Tractacus  de  Legibus  Regni  Angliae,  were  written. 

As  the  first  of  the  English  branch  of  the  Plantagenets,  Henry's  vast 
domains  spread  far  beyond  England,  extending  from  the  Pentland  Firth 
in  the  north  to  the  Pyrenees  in  the  south.  To  safeguard  his  empire  he 
needed  an  army  available  for  continuous  service.  Rather  than  relying  on 
the  customary  military  services  of  forty  days  owed  him  annually  by  his 
tenants-in-chief  with  their  retainers,  he  began  insisting  that  these  feudal 
services  should  be  commuted  into  a  cash  payment  or  'scutage'  (from  the 
Latin,  'scutum',  a  shield),  a  process  as  welcome  to  the  barons  as  to 
Henry's  finances.  With  the  proceeds  Henry  was  thus  able  to  build  up  a 
more  reliable  and  more  mobile,  permanent  professional  army  of 
mercenaries,  or  'soldiers'  as  they  became  known  thereafter,  from  the 
'solidus'  or  king's  shilling  that  they  earned. 

Having  restored  order  and  set  in  train  his  political  and  legal  reforms, 
Henry  carried  out  a  thorough  reform  of  the  coinage  in  1158  to  repair 
the  damage  done  during  the  Civil  War.  This  new  coinage  is  known 
either  as  the  'cross  and  crosslets'  from  its  design,  or  as  the  'Tealby'  issue 
from  the  hoard  of  nearly  6,000  such  coins  found  at  the  Lincolnshire 
village  of  that  name  in  1807.  (It  is  perhaps  a  commentary  on  official 
vandalism  that  over  5,000  coins  from  the  Tealby  find  were  melted  down 
by  the  Royal  Mint  as  scrap  silver.)  The  name  'Henricus'  remained 
unchanged  on  English  coins  for  121  years,  that  is  until  1279,  throughout 
the  reigns  not  only  of  Henry  II  himself  and  Henry  III  but  also  those  of 
John,  Richard  and  the  first  seven  years  of  Edward  I:  a  classic  case  of 
what  numismatists  call  'immobilization'.  In  all  that  long  period,  there 
were  only  three  distinctive  changes  of  type:  the  'Tealby',  introduced  as 



we  have  seen  in  1158;  the  'short  cross'  in  1180;  and  the  'long  cross'  in 
1247.  Apart  from  very  minor  details  these  issues  would  remain 
unchanged  until  the  normal  processes  of  wear  and  tear  made  a  further 
general  recall  and  reform  necessary.  This  indicates  how  completely 
Henry  II  had  broken  with  the  old  regular  triennial  revisionist  tradition 
which  was  never  reintroduced.  Henry's  fiscal  reforms  including  the 
process  of  commutation  of  feudal  dues,  of  which  scutage  was  simply 
the  most  prominent  example,  made  excessive  reliance  on  seigniorage 
unnecessary.  Henry's  reform  restored  the  prestige  of  English  money,  the 
quality  of  which  was  jealously  safeguarded  from  any  further  major 
decline  until  the  mid-sixteenth  century.  This  was  so  unlike  the  situation 
on  the  Continent  that  the  term  'the  pound  sterling'  emerged  into 
common  usage  with  its  well-known  praiseworthy  connotations. 

The  origin  of  the  term  'the  pound  sterling'  remained  a  puzzling  and 
controversial  matter  to  experts,  at  least  until  the  authoritative  and 
probably  definitive  treatment  of  the  matter  by  Grierson  in  1961  (see  his 
'Sterling'  in  Dolley  1961).  He  shows  that  although  the  earliest  variant  of 
the  term  goes  back  to  1078  in  the  form  'sterilensis',  it  was  not  until  the 
thirteenth  century  that  it  appears  as  sterling,  though  'starling'  and 
'easterling'  also  arise  to  confuse  the  issue.  Both  'star'  and  'starling'  are 
plausibly  suggested  by  those  who  see  the  origin  arising  from  various 
designs  of  these  found  on  early  English  coins.  Less  plausibly,  some  see 
the  powerful  'Easterlings'  (international  merchants  and  money- 
changers) as  parents  of  the  term.  It  may  be  a  misguided  (but  common) 
failing  to  seek  a  single  explanation  for  matters  concerned  with  money, 
which  by  its  nature  is  inevitably  among  the  most  widely  used  of 
artefacts.  Consequently  the  term  'sterling',  like  money  itself,  may  in  fact 
have  a  number  of  complementary  origins.  Grierson  himself,  despite  the 
very  powerful  case  he  makes  for  his  own  interpretation,  modestly 
admits  room  for  doubt.  Nevertheless  he  persuasively  sees  the  origin  in 
the  strength  and  stability  of  sterling  as  given  by  the  key  Germanic  root 
of  'ster',  meaning  'strong'  or  'stout',  and  the  'ling'  as  the  corruption  of 
a  common  monetary  suffix.  Hence  'sterling'  would  be  the  natural 
description  for  English  money,  which  from  the  tenth  century  onward 
tended  generally  to  be  of  higher  quality  than  that  of  its  continental 
neighbours,  and  therefore  referred  specifically  to  the  penny  coins 
weighing  22  Vi  grains  troy  of  silver  at  least  pure  to  925  parts  in  a 
thousand,  240  of  which  made  the  Tower  pound  weight  or  the  pound 
sterling  in  value.  It  is  also  significant  to  note  that  the  term  'pound 
sterling'  was  in  common  use  throughout  Europe  in  the  Middle  Ages, 
with  all  its  connotations  of  solidity,  stability  and  quality  -  long  before 
the  issue  of  a  pound  coin  -  when  silver  was  almost  the  only  metal  used 



in  British  coinage  and  the  penny  was  almost  the  only,  and  certainly  the 
main,  coin.  Indeed,  it  is  the  minting  of  the  gold  sovereign  by  Henry  VII 
which  may  be  taken  as  a  symbol  of  at  least  one  of  the  many  monetary 
developments  which  marked  the  end  of  the  Middle  Ages.  So  long  as 
full-bodied  gold  and  silver  coins  were  issued  in  Britain,  that  is  right  up 
to  the  First  World  War,  so  long  did  the  term  'the  pound  sterling' 
maintain  its  prestigious  significance,  that  is  for  a  period  spanning  well 
over  800  years,  from  1078  to  1914. 

Touchstones  and  trials  of  the  Pyx 

Edward  I  (1272-1307)  kept  to  the  'Henricus'  long-cross  issues  for  the 
first  seven  years  of  his  reign,  by  which  time  the  state  of  the  currency  in 
general  had  deteriorated  so  much  because  of  ordinary  wear  and  tear 
that  a  general  replacement  was  becoming  overdue.  Although  the  main 
purpose  of  extending  the  crosses  on  the  long-cross  type  right  to  the 
perimeter  of  the  coins  had  been  in  order  to  deter  clipping,  in  this  respect 
it  had  not  been  a  great  success.  After  1275,  when  Edward  forbade  the 
Jews  to  exact  usury,  clipping  increased  and  quality  declined  markedly. 
(The  Jews  were  again  blamed  and  suffered  wholesale  arrests  in  1278 
and  expulsion  in  1290.)  Edward,  however,  did  far  more  than  simply 
issue  a  replacement  coinage.  He  guaranteed  for  himself  a  place  in  the 
history  of  English  money  by  the  very  thorough  nature  of  his  reforms  of 
1279  to  1281,  particularly  by  introducing  three  new  denominations:  the 
halfpenny,  the  farthing,  and  the  fourpenny-piece  known  as  the  'groat' 
as  well,  of  course,  as  the  traditional  penny.  Instead  of  having  to  rely 
simply  on  a  single  denomination,  there  were  henceforth  four 
denominations  bringing  far  greater  flexibility  and  convenience  to  the 
monetary  system.  The  increasing  demand  for  low-denomination 
coinage  -  copiously  confirmed  by  the  persistence  of  the  habit  of  cutting 
the  penny  in  half  or  in  quarters,  at  a  time  when  a  single  penny  was 
worth  a  full  day's  pay  or  would  buy  a  sheep  -  had  been  resisted 
previously  because,  apart  from  the  value  of  the  metal,  the  cost  of 
minting  a  farthing  was  practically  the  same  as  that  for  minting  a  penny. 
Edward  overcame  this  difficulty  partly  by  making  over  to  the  minters  a 
greater  allowance,  in  effect  sharing  his  seigniorage,  and  partly  by 
making  the  farthing  slightly,  but  not  noticeably,  lighter  in  weight  than 
strictly  a  quarter  of  the  weight  of  the  penny. 

This  was  the  first  time  the  groat  (from  the  French  'gros')  had  been 
issued  in  England  and  the  first  time  'Dei  Gratia'  appeared  on  English 
coinage,  the  larger  size  giving  more  room  for  such  an  inscription. 
Edward's  reform  marks  the  beginning  of  the  regular  and  permanent 



issues  of  the  useful  halfpenny  and  farthing,  and  although,  as  we  have 
seen,  occasional  issues  of  halfpennies  had  been  made  previously,  these 
all  turned  out  to  have  been  short-lived  experiments.  At  the  beginning  of 
the  twelfth  century  King  John  (1199-1216)  had  produced  a  separate 
design  of  pennies,  halfpennies  and  farthings  for  Ireland,  bearing  his 
own  name,  but  these  were  not  issued  in  England,  where  only  the 
Henricus  short-cross  type  were  issued.  A  similarly  experimental  but 
abortive  initial  issue,  this  time  of  the  first  gold  coins  in  medieval 
Britain,  appeared  in  1257  when  Henry  III  issued  what  he  called  a  'Gold 
Penny'.  This  was  part  of  a  widespread  new  European  fashion  for  gold 
coins.  Sicily  and  Italy,  more  closely  under  Byzantine  and  Arab  influence, 
started  the  fashion  when  gold  coins  were  issued  in  Messina  and  Brindisi 
in  1232;  in  Florence  in  1252;  and  in  Genoa  in  1253.  Of  the  three  Italian 
gold  coins  it  was  the  Florentine  variety,  impressed  with  the  town's  floral 
emblem,  that  coined  a  new  name  —  the  'florin'  —  which  became  widely 
imitated  in  Europe,  significantly  increasing  the  aggregate  supply  of 

Henry  Ill's  'gold  penny'  was  based  on  a  simple  10:1  ratio  of  gold  to 
silver  and,  being  twice  the  weight  of  the  silver  penny,  therefore  carried 
an  official  value  of  twenty  pence.  However  the  issue  failed,  partly 
because  it  was  in  fact  undervalued  but  mainly  because  it  was  not 
popular.  There  was  insufficient  demand  to  guarantee  the  widespread 
acceptance  of  such  a  high-value  coin  in  England.  Not  until  almost  a 
century  later  was  there  a  reissue  of  gold,  this  time  by  Edward  III  in 
1343,  and  now  called  a  gold  'florin'.  This,  at  six  shillings,  turned  out  to 
be  overvalued,  and  was  therefore  replaced  in  1346  by  the  gold  'Noble' 
worth  eighty  pence,  one-third  of  a  pound  or  6s.  %d.  Considering  the 
contemporary  victory  of  the  English  at  Crecy,  it  was  aptly  named  and 
designed,  with  its  large  ship  on  the  obverse  being  a  tribute  to  English 
sea  power  in  general  and  the  contemporary  Battle  of  Sluys  in  particular. 
This  time  the  ratio  of  gold  to  silver  was  just  about  right  -  but  the 
stability  of  this  ratio  lasted  only  for  a  decade  or  so.  These  early 
difficulties  associated  with  the  introduction  of  bimetallism  into  Britain 
were  to  recur  at  irregular  intervals  throughout  the  succeeding  centuries. 

Gold  coinage  in  the  Middle  Ages  was,  because  of  its  high  value,  of 
concern  mainly  to  merchants,  especially  those  engaged  in  foreign  trade. 
Yet  anyone  who  had  occasion  to  handle  coins  of  silver  or  of  gold  in  any 
volume,  whether  merchants,  traders,  tax  collectors,  the  king  himself, 
the  royal  treasury,  or  the  sheriffs,  required  reliable  devices  for  testing  the 
purity  of  what  passed  for  currency.  The  people  in  general  benefited 
indirectly  from  this  deep  concern  by  merchants  and  administrators, 
which  acted  to  bring  about  periodic  reforms  of  the  currency  back  to  the 



official,  legal  standards.  The  two  main  methods  used  for  testing  purity 
were  as  follows:  one  rather  rough  and  ready  device  for  judging  coins 
already  in  currency  was  the  'touchstone';  the  other,  as  formal  and 
meticulous  as  was  technically  possible  in  those  times,  was  used  for 
testing  freshly  minted  coins,  and  became  known  as  the  Trial  of  the  Pyx. 

Touchstones  were  handy-sized  pieces  of  fine-grained  schist  or  opaque 
quartz,  commonly  red,  yellow  or  brown,  which  had  from  antiquity  been 
used  for  testing  precious  metals  by  drawing  the  metal  object  across  the 
stone  and  examining  the  colour-trace  left  by  the  metal  on  the  stone's 
smooth  surface.  Variations  in  colour  corresponded  with  variations  in 
the  purity  of  the  metal  or  its  alloy.  The  resulting  colour  of  any  tested 
coin  could  be  compared  with  that  made  by  standard  metals  kept 
specially  for  test  purposes.  Although  touchstones  therefore  enabled 
judgements  to  be  made  only  subjectively  and  comparatively, 
nevertheless  for  most  ordinary  circumstances  they  served  their  purpose 
well.  Certainly  they  readily  exposed  at  least  the  grosser  debasements 
which  might  otherwise  easily  pass  the  normal  scrutiny  of  the  market- 
place. As  increasing  use  of  gold  coins  became  fashionable  the  need  for 
touchstones  grew  considerably  since  the  profits  from  debasement  or 
adulteration,  whether  official  or  unofficial,  were  all  the  greater.  In  any 
cases  of  dispute  it  was  natural  for  the  contestants  to  turn  to  the  experts 
-  the  goldsmiths  -  to  decide  the  matter.  In  this  way  the  Goldsmiths' 
Company  of  the  City  of  London  became,  as  early  as  1248,  and  remains 
to  this  day,  the  official  arbiter  of  the  purity  of  British  coinage.  Before 
better  techniques  were  introduced  the  London  Goldsmiths  regularly 
kept  and  issued  twenty-four  test  gold  pieces  or  'touch-needles'  for  use  in 
conjunction  with  touchstones,  one  for  every  twenty-four  of  the 
traditional  gold  carats,  with  similar  test  pieces  for  silver.  They  also  were 
responsible  for  issuing  test-plates  of  gold  and  silver  to  the  nine  regional 
hallmarking  centres  such  as  Birmingham,  Edinburgh,  Chester  and 
Exeter.  A  number  of  public  trials  based  on  such  test  pieces  grew  up 
around  all  the  regional  mints;  but  the  most  formal,  meticulous  and 
strictest  of  all  the  monetary  tests  were  those  of  the  London  mint  - 
which  by  then  had  become  by  far  the  most  important  -  known  as  the 
'Trial  of  the  Pyx'. 

In  this  way  a  public  jury  of  'twelve  discreet  and  lawful  citizens  of 
London  with  twelve  skilful  Goldsmiths'  were,  from  the  mid-thirteenth 
century  onward,  empowered  to  make  a  public  testing  of  a  sample  of 
coins  freshly  issued  or  issued  within  a  previously  agreed  time  limit,  by 
the  Royal  Mint.  The  earliest  extant  writ  ordering  such  a  public  trial  is 
that  by  Edward  I,  in  1282,  another  indication  of  his  determination  to 
maintain  the  quality  of  the  currency.  In  1982,  to  mark  the  700th 



anniversary  of  the  writ  of  Edward  I,  the  Trial  of  the  Pyx  was  attended 
by  Queen  Elizabeth  II  and  the  Chancellor  of  the  Exchequer,  Sir 
Geoffrey  Howe.  The  'pyx'  derives  its  name  from  the  box  within  which 
the  coins  were  locked  and  so  kept  safe  from  being  used  or  being 
tampered  with  until  the  day  of  their  public  trial.  Whereas  the  simple 
touchstone  method  hardly  damaged  or  marked  the  coin  and  was  just 
concerned  with  a  general  indication  of  the  composition  of  the  metal, 
the  trial  by  pyx  was  always  far  more  thorough,  investigating  all  aspects 
of  the  coinage,  using  the  most  up-to-date  techniques  available  for 
testing  the  weight,  design,  diameter  and  purity  of  the  coins,  with  a 
sufficient  sample  usually  being  melted  down,  to  see  that  they  complied 
with  the  strictest  letter  of  the  law.  The  pyx  also  indirectly  encouraged 
the  use  of  the  most  economical  and  least  wasteful  methods  of  turning 
precious  metals  into  coinage,  the  allowable  tolerances  being 
continuously  improved  through  time.  The  pyx  thus  helped  the 
merchants  to  get  the  coins  of  the  standards  they  liked,  and  the  king  to 
get  full  value  in  coins  in  return  for  the  precious  metals  sent  to  the  mint. 
The  London  Goldsmiths'  Company  and  their  jurymen  were  known  to 
take  their  duties  very  seriously  and  so  were  a  powerful  factor  in 
reinforcing  the  determination  of  most  of  the  English  kings  during  the 
Middle  Ages  to  resist  the  general  European  slide  towards  debasement. 
Sound  money  was  sound  sense:  that  was  the  axiomatic  and 
unquestioned  assumption. 

The  Treasury  and  the  tally 

Any  change  in  the  quality  of  the  currency  was  literally  brought  home  to 
the  royal  treasury  whenever  taxes  were  collected,  especially  during  the 
normal  regular  twice-a-year  collections  brought  by  the  sheriffs  to 
London.  Because  of  this  the  sheriffs  would  have  carried  out  their  own 
preliminary  selections  throughout  the  previous  six  months,  weeding 
out  the  more  obviously  inferior  coins,  fully  conscious  that  a  stricter 
scrutiny  would  face  them  at  the  court  of  the  Exchequer.  There  was 
therefore  a  necessarily  close  connection  between  the  minting  of  money 
and  collecting  it  back  in  taxes.  Minting  and  taxing  were  two  sides  of  the 
same  coin  of  royal  prerogative,  or,  we  would  say,  monetary  and  fiscal 
policies  were  inextricably  interconnected.  Such  relationships  in  the 
Middle  Ages  were  of  course  far  more  direct  and  therefore  far  more 
obvious  than  is  the  case  today.  In  the  period  up  to  1300  the  royal 
treasury  and  the  Royal  Mint  were  literally  together  as  part  of  the  king's 
household.  When  the  mint  was  moved  to  the  Tower  in  1300  it  was 
because  it  needed  larger  premises  and  in  any  case  it  was  still  very  close 



to  the  royal  administrative  centre.  Our  knowledge  of  these 
interconnections  between  the  receipt  and  expenditure  of  royal  moneys 
is  known  to  us  not  only  from  the  Dialogus  which  was  written  about 
1176—9  to  which  reference  has  already  been  made,  but  also  to  the 
official  collection  of  fiscal  records  known  as  the  Red  and  Black  Books 
of  the  Exchequer,  compiled  from  the  thirteenth  century  onward,  and 
the  Pipe  Rolls  of  the  Exchequer  which  extend  from  1155  to  1833.  The 
importance  of  this  rich  historical  quarry  is  thus  fairly  summarized  by 
Professor  Elton:  'The  history  of  the  people  of  England,  high  and  low 
though  more  the  relatively  high,  is  deposited  in  the  materials  arising 
from  the  efforts  of  her  kings  to  finance  their  governments'  (Elton  1969, 

The  Treasury,  or  Exchequer,  as  it  was  more  commonly  called,  was  the 
first  section  of  the  royal  household  to  be  organized  as  a  separate 
department  of  state  clearly  distinguishable  from,  though  inevitably  still 
very  closely  associated  with,  the  management  of  the  royal  household. 
As  early  as  the  middle  of  the  twelfth  century  its  increasing  workload 
caused  it  to  become  divided  into  two  sections,  one  specializing  in  the 
receipt,  storage  and  expenditure  of  cash  and  other  payments,  and  the 
other  into  recording,  registering  and  auditing  the  accounts.  The  first 
section,  the  Exchequer  of  Receipt,  was  also  known  as  the  Lower 
Exchequer,  while  the  second  section,  the  Exchequer  of  Account,  was 
called  the  Upper  Exchequer.  For  ease  in  reckoning  and  'checking'  the 
cash  payments,  the  Exchequer  tables,  ten  feet  by  five,  were  covered  with 
a  chequered  cloth,  either  black  lined  with  white,  or  green  with  red-lined 
squares,  which  custom  gave  its  name  not  only  to  the  institution  but  also 
subsequently  to  the  'cheque'  or,  as  still  in  America,  the  'check'.  The 
Exchequer  of  Receipt  made  increasing  use  of  an  ancient  form  of 
providing  evidence  of  payment  by  issuing  'tallies',  and  developed  this 
system  so  much  that  the  history  of  the  Treasury  is  inseparately 
connected  with  that  of  the  tally.  Anthony  Steel  did  not  exaggerate  in 
giving  his  expert  opinion  that  'English  medieval  finance  was  built  upon 
the  tally'  (Steel,  1954,  xxix). 

From  time  immemorial,  scored  or  notched  wooden  sticks  have  been 
used  in  many  parts  of  the  world  for  recording  messages  of  various 
kinds,  particularly  payments.  Wood  was  normally  very  readily  available 
and  therefore  very  cheap.  Although  easy  to  mark  with  the  desired 
message  or  numbers,  it  was  durable,  and  with  reasonable  care  it  was  not 
easily  damaged.  Thus  just  as  our  word  'book'  is  probably  derived  from 
the  'beech'  tree,  so  the  piece  of  wood  customarily  used  as  a  receipt  was 
called  a  'tally',  from  the  Latin  'talea',  meaning  a  stick  or  a  slip  of  wood, 
and  still  retaining  its  monetary  significance  in  the  Welsh  'talu',  meaning 



'to  pay'.  This  derivation  seems  more  probable  than  the  alternatively 
suggested  derivation  from  the  French  'tailler',  to  cut,  which  supposed 
the  method  of  scoring  to  explain  its  origin  -  though  here  again  this 
usage  may  have  reinforced  the  acceptance  of  the  term.  In  days  before 
paper  became  cheap  enough  for  everyday  use,  when  literacy  was  low 
and  numeracy  limited,  the  use  of  special,  simplified  forms  of  wooden 
records  was  universally  popular.  Consequently  it  was  perfectly  natural 
for  the  Exchequer  to  adopt  and  adapt  this  well-known  practice.  Nowhere 
in  the  world,  however,  did  the  use  of  the  notched  stick  or  'tally'  develop 
to  such  an  extent,  or  persist  in  official  circles  so  long,  as  in  Britain,  even 
after  the  arrival  of  modern  banking  methods  and  cheap  paper  had  long 
rendered  them  redundant  (see  Robert  1952  and  below,  p.  663). 

At  first  the  tally  was  used  by  the  Exchequer  in  just  the  same  way  as  in 
private  business  affairs,  that  is  simply  as  a  receipt.  Our  detailed 
knowledge  of  the  ways  in  which  the  tallies  were  used  again  comes 
mainly  from  the  Dialogus  de  Scaccario,  written  by  Richard  Fitznigel, 
whose  family  exercised  a  powerful  influence  over  the  king's  business 
throughout  the  twelfth  century,  beginning  with  Roger  of  Caen,  who  was 
made  bishop  of  Salisbury  by  Henry  I  in  1102,  and  became  known  as 
'the  principal  architect  of  Anglo-Norman  administration'  -  praise  of 
the  highest  order.  His  nephew  Nigel  became  bishop  of  Ely  in  1133,  and 
it  was  his  son,  Richard,  who  wrote  the  Dialogus,  the  first  treatise  on 
any  government  department  in  England,  based  on  some  forty  years' 
experience  as  Treasurer  of  the  Exchequer,  from  about  1156  or  1160  to 
1198.  For  this  long,  effective  and  faithful  service  he  was  made  bishop  of 
London  in  1189,  an  office  which  he  held  concurrently  with  that  of 
Treasurer  (Chrimes  1966,  50-65).  From  the  example  of  this  single 
family,  entrenched  in  the  new  civil  service,  we  can  see  how  Church,  state 
and  finance  were  almost  inseparably  interconnected,  a  fact  that  also 
helps  to  explain  how  the  kings'  business  was  usually  carried  through 
with  zeal  and  efficiency  even  during  the  sovereigns'  considerable 
periods  of  absence  on  crusades  or  other  wars  abroad. 

From  Fitznigel's  detailed  account  we  know  that  the  tally  was 
commonly  of  hazel,  about  8  or  9  in.  long,  although  those  representing 
very  large  amounts  of  money  would  need  to  be  correspondingly  larger, 
for  the  larger  the  sum,  the  larger  the  amount  of  wood  removed  in  the 
cutting  process.  According  to  the  Dialogus,  £1,000  (a  very  substantial 
but  not  quite  a  rare  amount)  was  represented  by  cutting  a  straight 
indented  notch  the  width  of  a  man's  hand  (i.e.  4  in.)  at  the  far  end  of  the 
tally;  £100  was  a  curved  notch  as  wide  as  a  man's  thumb  (i.e.  1  in.).  An 
amount  very  commonly  represented  was  the  score  or  £20,  which  was 
made  by  cutting  a  V-shape,  the  mouth  of  which  would  just  take  the  little 



finger.  The  groove  for  £1  would  just  take  a  ripe  barley-corn;  that  for  one 
shilling  was  just  recognizably  a  narrow  groove;  a  penny  was  simply  a 
straight  saw-cut,  a  halfpenny  merely  a  punched  hole.  Everybody,  whether 
or  not  he  could  read  or  write  was  aware  of  the  standard  values.  When  the 
tax  or  other  cash  payment  had  been  agreed  the  resulting  tally  was 
carefully  cut  long-ways  into  two  so  that  the  two  parts  would  match  or 
'tally'.  The  larger  part,  retaining  the  uncut  handle  or  'stock'  was  kept  by 
the  creditor,  while  the  smaller  part,  the  'foil'  was  kept  by  the  debtor.  From 
this  practice  most  probably  came  our  description  for  government  or 
corporate  'stock'  and  for  the  'counterfoil'. 

The  tendency  throughout  the  Middle  Ages  towards  commuting 
payments  in  kind  to  cash  payments  had  the  unfortunate  result  -  for  the 
Crown  -  of  fixing  such  returns  at  the  levels  determined  at  the  beginning 
of  that  period.  Consequently,  even  in  normal  peacetime  periods,  the 
customary  royal  revenues  were  insufficient.  Additional  taxes,  such  as 
'aids'  and  'subsidies',  grew  from  being  special  levies  for  helping  to  pay  for 
wars,  ransoms  and  so  on,  to  become  part  and  parcel  of  the  annual  fiscal 
requirements.  By  the  middle  of  the  thirteenth  century  the  usual  tax- 
gathering  system,  according  to  Fitznigel,  took  the  following  fashion.  Half 
the  taxes  assessed  for  each  region  for  the  previous  year  were  collected 
during  the  first  quarter  by  the  sheriff,  who  carried  the  proceeds  to  be  paid 
in  to  the  Exchequer  of  Receipt  at  Westminster  at  Eastertime.  There  the 
careful  counting,  checking  and  tallying  processes  were  then  completed 
and  the  audited  results  recorded  in  the  Upper  Exchequer.  During  the  next 
six  months  the  rest  of  the  taxes  would  be  collected  and,  if  necessary,  new 
assessments  made.  This  adjusted  half  would  then  again  be  taken  to 
Westminster,  the  final  proceedings  being  completed  in  the  Upper 
Exchequer,  and  the  final  tallies  registered,  at  or  around  Michaelmas. 

The  true  economic  significance  of  the  Exchequer  tally  soon  grew  to  be 
far  more  important,  however,  than  being  simply  a  straightforward  record 
of  tax-collecting  and  receipt-giving.  At  a  time  when  usury  was  strictly 
forbidden  and  subject  to  the  direst  penalties  the  tally  became  not  only 
one  of  the  main  vehicles  for  circumventing  such  prohibition,  but  a 
method  of  raising  loans  and  extending  credit,  of  acting  as  a  wooden  bill 
of  exchange,  and  a  sort  of  dividend  coupon  for  royal  debt.  It  helped  to 
develop  an  embryo  money  market  in  London  involving  the  discounting  of 
tallies,  the  negotiability  of  which  led  to  an  enlarged  total  of  credit  based 
upon  a  growing  foundation  of  Exchequer  debt.  In  the  last  century  or  so 
of  the  Middle  Ages,  when  the  demand  for  money  was  rapidly  outgrowing 
the  European  supply  of  silver  and  gold,  the  tally  became  used  in  ways 
which  effectively  increased  the  money  supply  beyond  the  limits  of 



The  first  stage  in  this  process  was  the  'assignment',  by  which  a  debt 
owed  to  the  king,  shown  physically  by  the  tally  stock  held  in  the 
Exchequer,  could  be  used  by  the  king  to  pay  someone  else,  by 
transferring  to  this  third  person  the  tally  stock.  Thus  the  king's  creditor 
could  then  collect  payment  from  the  king's  original  debtor. 
Alternatively  this  new  creditor  might  decide  to  hold  the  tally  to  pay  his 
share  of  taxes  required  in  a  subsequent  tax  season.  His  decision  of 
which  alternative  to  choose  (or  any  similar  variant)  would  depend  on 
the  relative  convenience  and  costs  of  the  proceedings.  What  soon 
became  clear  from  as  early  as  the  twelfth  century  onward,  was  that  'the 
exchequer  of  receipt  was  tending  to  become  more  and  more  of  a 
clearing-house  for  writs  and  tallies  of  assignment  and  less  and  less  the 
scene  of  cash  transactions'  (Steel  1954,  xxx).  The  resulting  economy  in 
the  use  of  coinage  and  the  relief  of  pressures  on  minting  were  again  of 
obvious  importance. 

A  similar  economy  in  the  use  of  cash  was  made  in  the  development  of 
the  'tallia  dividenda'  or,  more  simply,  'dividenda',  which  were  initially 
given  to  tradesmen  who  supplied  goods  to  the  royal  court,  the 
'dividenda'  being  redeemable  at  the  Exchequer,  just  as  in  the  later,  more 
open  system  of  dividend  payments  on  government  stock  or  bonds. 
Similar  net  collections  and  net  distributions  of  tallies  were  made  by 
sheriffs  in  aggregating  the  shire  payments  into  larger  amounts,  often 
with  physically  larger  tallies,  which  again  cut  down  on  the  amount  of 
purely  cash  transactions.  A  considerable  increase  in  the  flow  of  tallies, 
and  therefore  a  corresponding  increase  in  credit,  occurred  when  royalty 
began  habitually  to  issue  tallies  in  anticipation  of  tax  receipts,  a  system 
commonly  engrafted  on  to  that  of  tallies  of  assignment.  Owners  of 
exchequer  tallies  in,  say,  Bristol  might  have  to  travel  to  York  or  further 
to  collect  their  due  payment  -  unless,  that  is,  they  could  find  someone 
who,  for  a  suitable  discount  on  its  nominal  value,  would  purchase  the 
tally-stock  from  the  holder.  A  similar  process  would  result  in  order  to 
avoid  having  to  wait  until  the  Exchequer  received  its  anticipated  taxes. 
In  this  way,  by  arbitrating  between  varying  spatial  and  time  preferences, 
a  system  of  discounting  tallies  arose,  especially  in  London,  operated  in 
a  number  of  recorded  instances  by  officials  working  in  the  Exchequer, 
who  knew  the  best  way  to  work  the  system,  and  who  could  give  the  best 
guarantees  at  the  most  reasonable  discounts  relative  to  the  risks 
involved.  In  this  way  too  the  sin  of  usury  could  safely  be  avoided. 

There  were  other  ways  around  usury  by  means  of  the  tally.  One  such 
method,  particularly  associated  with  cash  payments  into  the  Exchequer 
in  anticipation  of  taxes,  was  to  record  in  the  rolls  and  to  issue  as  a  tally 
an  amount  greater,  commonly  by  some  25  per  cent,  than  the  cash 



actually  paid  in.  Although  by  the  very  nature  of  this  procedure  there 
could  be  no  written  or  other  very  obvious  method  to  incriminate  its 
users,  a  number  of  expert  historians  have  uncovered  sufficient  clues  to 
suggest  that  such  practices  were  not  uncommon.  Since  the  originally 
agreed  date  of  redemption  of  such  tallies  was  often  delayed  and 
sometimes  uncertain,  another  avenue  opened  up  for  the  discounter  of 
these  wooden  bills  of  exchange.  When  the  costs  of  discount  were  taken 
into  account  the  true  rate  of  interest  generally  became  much  less  than 
the  hidden  allowance  of  25  per  cent  or  so  initially  granted. 

However  indispensable  the  tally  may  have  been  to  the  financial 
system  of  the  Middle  Ages  one  could  in  strict  logic  hardly  see  the  need 
for  it  in  later  centuries.  Here  again,  however,  the  logical  and  the 
chronological,  the  expected  and  the  actual,  the  apparently  sensible  and 
the  concretely  historical,  progress  of  events  did  not  march  hand  in 
hand.  Far  from  dying  out  towards  the  end  of  the  fifteenth  century,  the 
tally  went  on  growing  from  strength  to  strength,  reaching  its  highest 
importance  in  the  generation  which  gave  rise  to  the  Bank  of  England  at 
the  end  of  the  seventeenth  century  and  managing  anachronistically  to 
persist  right  down  to  1834  -  developments  which  will  be  traced 
accordingly  in  later  chapters.  It  has  already  been  shown  how  the 
humble  tally  in  the  Middle  Ages  developed  from  being  a  simple  receipt 
to  a  fairly  complex  and  sophisticated  financial  medium,  providing 
elasticity  in  the  money  supply  unobtainable  if  the  path  of  grossly 
debasing  the  coinage  were  to  be  avoided,  as  was  the  case  in  England. 
The  tally  also  stimulated  the  hesitant,  partially  hidden  rise  in  London 
of  an  embryo  money  and  capital  market,  where  'interest'  was  paid  on 
the  basis  of  the  repayment  of  fictitiously  swollen  loans.  The  increased 
negotiability  of  tallies  enabled  rich  individuals  to  raise  larger  loans  for 
the  Crown  and  for  other  merchants.  The  tally,  that  medieval  maid  of  all 
monetary  labours,  possessed  an  engaging  modesty  that  hid  from  legal 
scrutiny  a  growing  public  involvement  in  usurious  affairs.  The  struggle 
to  maintain  the  traditional  Christian  prohibition  on  usury  began  to 
clash  with  the  desires  of  a  richer  society  to  reward  productive  savings, 
and  with  the  even  more  urgent  imperatives  of  the  Crown  to  meet  its 
increasing  expenses  in  peace  and  war,  though  these  tensions  did  not 
reach  breaking  point  until  much  later.  The  tally  was  the  main,  though 
not  of  course  the  only  internal  device  for  concealing  usury.  In  external 
trade  Jews  and  foreign  merchants  (as  we  shall  see  below  and  in  the  next 
chapter)  were  to  provide  not  only  lessons  in  avoiding  usury  but  also, 
more  generally,  the  means  by  which  British  monetary  practices  were 
very  considerably  influenced  during  the  later  Middle  Ages.  These  early 
developments  were  in  principle  not  unlike  those  occurring  today  in  the 



Arab  oil-producing  countries,  where  Muslim  teaching  with  regard  to 
usury  comes  into  conflict  with  the  strong  financial  forces  represented  in 
the  enormous  increases  in  the  flow  of  petro-currencies,  at  a  time  when 
the  major  banks  and  treasuries  of  the  world  are  generally  unconstrained 
by  the  laws  of  usury. 

The  Crusades:  financial  and  fiscal  effects 

The  main  external  influences  on  English  economic,  monetary  and  fiscal 
development  in  this  period  came  not  only  from  the  usual  causes  —  war 
and  trade  -  but  from  wars  conducted  at  unprecedented  distances  and 
also  from  the  considerable  growth  of  trade  in  the  exotic  new  products 
associated  with  those  distant  lands.  Although  the  Crusades  lasted, 
intermittently,  from  1095  to  the  mid-fifteenth  century,  it  was  during  the 
twelfth  and  thirteenth  centuries  that  their  main  direct  influences  were 
felt  in  England;  with  the  so-called  Hundred  Years  War  with  France, 
from  1338  to  1453,  subsequently  taking  the  centre  of  the  stage. 
Currently  fashionable  arguments  between  historians  as  to  whether  the 
Crusades  should  be  widely  or  narrowly  interpreted  in  terms  of  their 
geographical  extent  are  almost  irrelevant  from  the  point  of  view  of  their 
direct  effects  on  English  financial  history,  except  that  the  costs  of 
conducting  wars  such  a  long  way  from  home  as  the  eastern 
Mediterranean  were  considerably  greater  than  sending  and  equipping 
an  army  of  the  same  size  for  conflicts  in  western  Europe  (Riley-Smith 
1982,  48-9).  Payment  for  supplies,  equipment,  allies,  ransoms  and  so 
on,  from  time  to  time  required  vast  resources  of  cash  and  the  means  of 
safely  and  quickly  transferring  such  money.  These  new  needs  gave  rise 
to  financial  intermediaries  such  as  the  Knights  of  the  Temple  and  the 
Hospitallers  who  began  to  perform  important  semi-banking  functions 
such  as  those  which  were  already  being  developed  to  a  fairly  advanced 
level  in  some  of  the  Italian  city-states  and  in  the  famous  fairs  of 
medieval  France.  These  customs  were  later  carried  by  Italian 
'Lombards',  other  foreign  merchants,  and  by  the  Knights  Templar  and 
Hospitallers,  to  London.  Such  activities  were  greatly  extended  in 
volume  and  value  by  the  Crusades.  Ships  which  carried  armies  to  the 
eastern  Mediterranean  could  and  did  offer  cheap  facilities  for  return 
cargoes,  and  thus  increased  two-way  trade  across  the  Mediterranean. 
Carpets,  rugs,  fruits,  drugs,  jewellery,  glass,  perfumes,  finely  tempered 
steel,  new  kinds  of  machine,  and  above  all  new  knowledge  of 
mathematics,  navigation,  architecture  and  medicine  together 
constituted  a  most  valuable  variety  of  visible  and  invisible  imports  from 



the  east,  and  led  to  secular  pressures  towards  recurring  deficits  in  the 
balance  of  trade  of  the  Crusading  countries. 

The  most  immediately  visible  impact  of  the  Crusades  was,  however, 
in  capital  transfers  and  in  the  heavy  forced  loans  and  taxes  raised  to 
finance  them.  All  the  same  we  must  guard  ourselves  against  the 
temptation  to  assume  that,  because  modern  wars  are  highly 
inflationary,  then  so  also  were  those  of  the  Middle  Ages.  This  was  far 
from  necessarily  being  so,  since  the  heavily  increased  demand  for 
certain  materials  and  services  was  roughly  compensated  by  a 
corresponding  external  drain  of  gold  and  silver  to  'service'  the 
campaigns  and  to  pay  for  the  new  luxuries  from  the  East.  The  drain  of 
real  resources  in  the  form  of  the  export  of  knights  and  their  retainers 
and  camp  followers  together  with  their  armour,  horses,  equipment,  and 
their  transport  by  ship,  was  generally  roughly  matched  by  the  drain  of 
cash  and  bullion,  leaving  the  internal  macro-equation  between  money 
and  goods  roughly  the  same.  Prices  were  far  from  being  completely 
stable  of  course,  yet  in  view  of  the  extent  of  movement  of  armies  and 
goods,  a  surprising  degree  of  stability  was  nevertheless  maintained  by 
the  very  nature  of  the  physical  basis  of  medieval  money. 

The  importance  of  foreign  exchange  in  the  development  of  European 
financial  institutions  can  hardly  be  exaggerated  particularly  since  most 
of  the  earliest  recognizable  'banks'  of  modern  times  arose,  first  in  Italy 
and  France  and  then  in  the  Low  Countries,  mainly  out  of  their 
involvement  in  foreign  exchange.  Such  bankers  had  their  agents  in 
almost  all  the  important  financial  centres,  e.g.  Rome,  Venice,  Genoa 
and  Florence  in  Italy;  at  Troyes,  Rouen,  Lyons  and  Paris  in  France;  at 
Valladolid  and  Seville  in  Spain;  at  Bruges  and  Antwerp  in  the  Low 
Countries  —  as  well  as  in  London.  Their  financial  involvement  in 
London  -  just  like  England's  involvement  in  the  Crusades  -  was, 
however,  at  a  lower  level.  It  is  significant  that  the  early  banks  of  modern 
Europe  developed  first  in  Italy  and  France  out  of  their  massive  involve- 
ment in  foreign  exchange  based  largely  on  bills  of  exchange,  whereas 
when  some  centuries  later  indigenous  banking  developed  in  London  it 
arose  primarily  as  a  by-product  of  the  activities  of  goldsmiths  in 
handling  gold  and  silver  in  the  form  of  both  bullion  and  coins.  As  in 
many  other  economic  matters  England  relied  mainly  on  foreigners  to 
conduct  most  of  its  early  foreign  exchange  and  other  quasi-banking 
activities,  and  leaned  heavily  on  the  specialized  services  provided  by  the 
two  main  orders  of  international  chivalry,  the  Knights  Hospitallers  and 
the  Knights  of  the  Temple.  The  Order  of  the  Knights  of  the  Hospital  of 
St  John  of  Jerusalem  -  to  give  its  resoundingly  full  title  -  was  first 
formed  in  Jerusalem  shortly  after  the  city's  conquest  by  the  Christians 



in  1099,  to  carry  out  its  task  of  caring  for  the  casualties  of  the  Crusades. 
Although  the  establishment  of  hospitals  and  the  provision  of  medical 
care  has  remained  of  importance  to  the  order  right  up  to  the  present  (in 
the  form  of  the  well-known  St  John  Ambulance  brigades)  its 
commercial,  military  and  financial  activities,  sometimes  in  conjunction 
with,  but  more  often  in  competition  with,  the  rival  Templars,  grew  to 
overshadow  its  more  charitable  functions.  The  Order  of  the  Knights  of 
the  Temple  at  Jerusalem  —  the  Templars  —  was  formed  in  Jerusalem  in 
1120  and  grew  in  similar  fashion  to  become  a  formidable  economic  and 
political  force  around  the  Mediterranean  shores  and  in  western  Europe. 

These  two  orders  of  knights  had  their  own  ships,  kept  their  own 
private  armies,  depots  and  storehouses,  and  occupied  strong-points  and 
castles  at  a  number  of  strategically  placed  ports  and  inland  towns,  from 
Spain  to  Syria  and  from  England  to  Egypt.  They  could  therefore  easily 
arrange  the  safe  custody  and  delivery  of  valuable  goods,  specie  and 
coins,  and  often  save  the  necessity  of  moving  such  specie  and  coins  by 
bilateral  and  sometimes  trilateral  offsetting  transfers.  They  also 
themselves  owned  considerable  financial  resources  which  they  increased 
as  a  result  of  accepting  vast  deposits  from  kings  and  merchants,  which 
they  were  then  able  to  lend  out  to  creditworthy  borrowers,  the  interest 
element  in  such  dealings  normally  being  hidden  by  the  nature  of  the 
transactions  either  in  foreign  exchange  or  as  bills  of  exchange  or, 
frequently,  as  both.  Among  a  large  number  of  princely  gifts  made  to  the 
two  orders  were  the  vast  estates  bequeathed  by  Alfonso  I,  king  of 
Aragon,  and  the  less  valuable  but  still  impressive  estates  granted  to 
them  in  England  by  Stephen.  They  were  even  granted  powers  to  mint 
their  own  coins,  as  for  instance  did  the  Hospitallers  for  many  years 
from  their  bastion  at  Rhodes.  They  therefore  were  able  to  carry  out  the 
whole  range  of  merchant  banking  activities  relevant  to  the  increasing 
demands  of  commerce  and  politics  in  the  thirteenth  and  fourteenth 
centuries.  Their  long-standing  and  manifold  contacts  with  the  Muslim 
world  in  war  and  peace  enabled  them  to  act  as  a  bridge  by  which  the 
learning  of  the  East  enlightened  the  economic  and  social  life  of  the 
West.  It  can  hardly  be  a  matter  of  mere  coincidence  that  the  first  two 
fulling  mills  (water  mills  for  'fulling'  wool  to  remove  its  excess  oil)  were 
both  owned  by  and  built  on  estates  belonging  to  the  Templars  -  in  1185 
at  Newsham  in  Yorkshire  and  at  Barton  in  the  Cotswolds,  the  latter 
known  to  have  been  actually  built  by  the  Templars  themselves.  The 
windmill,  probably  originating  in  Persia,  had  already  spread  to  China 
and  over  much  of  the  Middle  East  by  the  time  of  the  Crusades  and 
gradually  spread  its  wings  in  Europe  from  this  time  onward.  The 
crusading  orders  therefore  seem  to  have  played  their  part  in  bringing 



about  what  Professor  Carus-Wilson  has  called  'an  industrial  revolution 
of  the  thirteenth  century  .  .  .  due  to  scientific  discoveries  and  changes  in 
technique'  (Carus-Wilson  1954,  41).  'Primitivists'  might  justifiably 
object  to  this  premature  use  of  the  term  'industrial  revolution',  but  they 
cannot  deny  the  commercial  and  financial  revolutions  that 
accompanied  and  facilitated  such  industrial  innovations.  (For  an 
authoritative  modern  survey  of  'The  Place  of  Money  in  the  Commercial 
Revolution  of  the  Thirteenth  Century'  see  Spufford,  1988,  chapter  11, 

Although  the  Crusades  were  not  responsible  for  the  origins  of  the 
bourgeoning  financial  centres  of  western  Europe,  they  can  at  the  very 
least  be  credited  with  greatly  encouraging  their  growth  by  adding  to  the 
variety  and  volume  of  goods  traded,  and  also  in  assisting  the 
advancement  of  their  financial  techniques,  especially  in  their 
widespread  use  of  the  modern  type  of  bill  of  exchange.  Our  knowledge 
of  the  origins  of  the  modern  bill  of  exchange  is  rather  vague,  and 
despite  some  allusions  to  their  use  by  the  Arabs  in  the  eighth  century 
and  by  the  Jews  in  the  tenth  century,  there  appears  to  be  no  concrete 
evidence  of  their  use  before  the  period  of  the  Crusades.  The  growth  in 
the  use  of  bills  of  exchange  was  therefore  coincident  with,  but  never 
exclusively  confined  to,  the  rapid  expansion  in  the  transfers  of  the  large 
amounts  of  capital  required  to  finance  the  Crusades.  Although  a  very 
considerable  number  of  merchant  bankers  were  involved  in  such 
transfers  -  at  a  time  when  most  merchants  were  forced  to  act  partly  as 
bankers,  and  most  bankers  were  similarly  involved  in  wholesale  trading 
-  the  two  main  intermediaries,  so  far  as  their  direct  involvement  with 
the  Crusades  was  concerned,  were  the  Knights  Templar  and  the 

According  to  Einzig,  the  first  known  foreign  exchange  contract  was 
issued  in  Genoa  in  1156  to  enable  two  brothers  who  had  borrowed  115 
Genoese  pounds  to  reimburse  the  bank  agents  in  Constantinople,  to 
which  their  business  was  taking  them,  the  sum  of  460  bezants  one 
month  after  their  arrival.  Such  examples  grew  fairly  rapidly  in  the 
following  century,  especially  when  the  profits  from  time  differences  in 
bills  involving  foreign  exchange  were  seen  as  not  infringing  canon  laws 
against  usury.  The  Church  itself  used  the  same  system.  In  1317  'the 
Papal  Chamber  concluded  with  the  banking  houses  Bardi  and  Peruzzi  a 
contract  covering  a  period  of  twelve  months,  during  which  the  Papal 
Nuncio  in  England  was  to  pay  over  to  their  London  branches  the 
proceeds  of  the  Papal  collections  for  remittance  to  Avignon',  such 
contracts  being  renewed  year  after  year  (Einzig  1970,  68).  The  examples 
given  refer  to  real  transfers  from  one  country  to  another;  but  partly  to 



escape  from  the  penalties  of  usury  and  partly  to  tap  credit  which  would 
otherwise  not  have  been  made  available,  large  amounts  of  'fictitious' 
bills  were  issued  which  either  were  simply  domestic  deals  masquerading 
as  foreign  or  simply  dealing  in  credit  without  real  goods  or  services 
being  involved.  In  this  way  again  the  constraints  of  a  limited  supply  of 
gold  and  silver  money  were  being  overcome  by  the  extension  of  paper 
credit,  just  as  in  the  more  backward  use  of  wooden  tallies  for  such 
purposes  in  England. 

Although  the  financial  results  of  the  Crusades  were  far-reaching  it 
was  their  fiscal  effects  in  the  form  of  urgent,  heavy  and  repeated  calls 
for  cash  through  new  aids,  subsidies,  tithes  and  other  taxes,  which 
appeared  of  most  obvious  concern  to  contemporaries  in  England. 
When  the  generous  but  weak  Stephen  was  succeeded  by  the  strong,  rich 
but  parsimonious  Henry  II  (1154-89),  the  scene  was  set  for  an  epic 
struggle  between  Henry  in  England,  the  Templars  and  Hospitallers  who 
acted  as  his  bankers  in  Jerusalem,  and  the  Crusading  armies  in  the  Holy 
Land,  who  were  fed  on  promises  but  denied  access  to  Henry's  funds. 
Henry  first  raised  a  special  tax  to  support  the  Crusades  in  1166, 
followed  by  such  lavish  payments  to  the  Templars  and  Hospitallers 
from  1172  onward  that  he  came  to  be  considered  -  by  the  critical 
Gerald  of  Wales  (among  others)  -  as  the  'chief  support  of  the  Holy 
Land'.  In  1185  Henry  levied  a  new  'crusading  tax'  at  sixpence  in  the 
pound  on  all  movable  property  and  1  per  cent  on  all  incomes  whether 
from  land  or  any  other  source,  a  heavy  burden  repeated  in  the  following 
two  years.  In  1187  Henry's  eastern  account,  therefore,  securely 
maintained  in  the  strongholds  of  the  Templars  and  Hospitallers  where 
it  was  as  safe  as  if  it  were  still  held  in  the  London  Exchequer,  amounted 
to  the  huge  sum  of  30,000  marks  or  approximately  20,000  pounds  of 
silver.  As  Dr  Mayer  has  shown,  'all  the  evidence  points  to  Henry 
accumulating  money  in  the  East  without  permitting  anyone  to  spend 
it',  at  least  until  after  the  disastrous  battle  of  Hattin  in  1187  (Mayer 
1982,  724).  Thus  the  explanation  for  the  fall  of  much  of  the  Holy  Land 
to  Saladin  is  not  due  to  the  'damsel  in  distress'  theory,  namely  the 
traditional  story  of  the  Crusaders'  armies  being  diverted  to  aid  the 
'Lady  of  Tiberias',  wife  of  Raymond  III,  Count  of  Tripoli,  but  rather 
the  miserly  restrictions  placed  by  Henry  on  the  use  of  his  vast  hoard  of 
money,  in  an  eventually  vain  attempt  to  have  his  cake  and  to  eat  it. 
Money,  not  chivalry,  lay  behind  the  fall  of  Jerusalem;  money  in  apparent 
abundance  but  in  reality  frozen  in  the  bank  vaults  of  the  Templars  and 

The  shock  of  the  fall  of  Jerusalem  stirred  Henry  to  unfreeze  his 
eastern  deposits,  to  raise  yet  more  taxes,  and  finally  at  long  last  to  'take 



the  cross'  himself  (i.e.  to  fight  personally  in  the  Crusades).  The  'Saladin 
Tithe'  of  1188  extended  the  new  source  of  taxation  inaugurated  in  1185, 
namely  the  taxation  of  personal  property,  and  also  speeded  up  the 
assessment  system  by  demanding  that  each  person  should  make  his  own 
personal  assessment  and  that  such  assessments  should  be  verifiable  by 
persons  in  the  locality  who  could  vouch  for  their  veracity.  These  examples 
of  local  accountability  boomeranged  against  the  royal  prerogative  in  later 
years  from  its  tendency  to  strengthen  the  customary  right  for  greater 
public  discussion  of  taxation  by  the  king's  council,  a  forerunner  of 
Parliament's  scrutiny  of  royal  taxation.  The  principle  of  'no  new  kinds  of 
taxation  without  some  more  explicit  form  of  representation'  thus  has  a 
long,  long  history,  stretching  back  well  into  the  Middle  Ages. 

The  outcry  against  the  heavy  burden  of  the  Saladin  tithe  was  far  from 
being  the  end  of  the  matter,  for  when  the  more  adventurous  Richard  I 
(1189—99)  succeeded  his  father,  England's  money  problems  multiplied. 
Richard's  policy  (reminiscent  of  that  of  the  Thatcher  government's 
'privatization'  of  publicly-owned  assets  in  the  1980s)  was  to  put  up  as 
much  as  possible  for  sale  in  order  quickly  to  supplement  the  taxes, 
liberally  granting  patents  and  charters  to  persons,  guilds  and  towns,  in 
return  for  cash  with  which  to  buy  allies,  ships,  armies  and  munitions.  He 
also  raised  ten  thousand  marks  (or  about  £6,666)  from  the  king  of  the 
Scots  by  releasing  him  from  the  vassalage  he  had  previously  been  forced 
to  promise.  Thus  armed,  Richard  embarked  on  the  Third  Crusade  in 
1190.  His  quarrels  with  Leopold,  Duke  of  Austria,  led  on  his  return  to  his 
capture  in  Vienna,  and  his  sale  to  Emperor  Henry  VI,  who  imprisoned 
Richard  at  a  secret  location.  The  delightful  legend  of  his  discovery  -  at 
Durrenstein  Castle  -  when  Blondel,  his  personal  troubadour,  played 
Richard's  favourite  tune,  and  so  eventually  received  his  royal  master's 
response  in  song  -  has  subsequently  reinforced  the  many  bright  tales  of 
medieval  chivalry;  but  at  the  time  it  turned  out  to  be  a  most  expensive 

The  piper's  tune  cost  England  a  pretty  penny.  A  colossal  ransom  of 
150,000  marks,  i.e.  £100,000  or  twenty-four  million  pennies,  was 
demanded,  a  sum  which  far  exceeded  the  whole  of  the  average  revenue  of 
the  kingdom.  Nevertheless,  a  high  proportion  of  the  ransom  was  quickly 
raised  and  paid  over  before  Richard's  release.  An  aid  of  £1  on  each 
knight's  fee,  together  with  a  general  'income  tax'  of  25  per  cent  on  rents 
and  property,  supplemented  once  more  by  further  sales  of  royal  offices 
and  privileges  and  by  generous  gifts,  sufficed  to  raise  the  required 
amount.  Among  the  most  generous  of  the  gifts  were  the  £2,000  given  by 
the  king  of  the  Scots,  and  the  proceeds  from  the  whole  of  the  year's  wool 
clip  by  the  Cistercian  monks  from  their  sheep-rich  lands. 



Little  wonder  that  the  eventual  reaction  to  such  heavy  and  repeated 
burdens  showed  itself  in  a  number  of  constitutional  developments 
around  this  time.  Article  XII  among  the  sixty-three  clauses  of  Magna 
Carta,  which  the  barons  forced  John  to  sign  on  15  June  1215,  stated  that 
'no  scutage  or  aid,  except  for  ransom,  for  the  knighting  of  the  king's 
eldest  son,  or  the  marriage  of  his  eldest  daughter,  should  be  raised 
without  the  consent  of  his  Barons  assembled  in  Great  Council'.  Despite 
frequent  royal  backsliding,  Henry  III  (1216-72)  was  similarly  forced  to 
toe  the  line  when  his  crusading  adventures  led  him  into  debts  that  could 
not  be  easily  redeemed  through  the  revenues  from  ordinarily  acceptable 
taxation.  Immediately  on  taking  the  cross  in  1250  Henry  attempted  on 
behalf  of  the  pope  to  wrest  Sicily  from  the  control  of  the 
Hohenstaufens,  but  soon  quarrelled  with  his  sponsor  when  he 
attempted  to  crown  his  younger  son  Edmund  king  of  Sicily.  When 
Henry  was  threatened  with  excommunication  and  found  himself 
virtually  bankrupt  at  the  same  time,  he  appealed  to  his  barons  for 
financial  assistance.  The  barons,  however,  agreed  to  grant  an  aid  only 
upon  certain  conditions.  They  demanded  the  reforms  suggested  by  a 
royal  commission  composed  of  twelve  royal  appointees  and  twelve 
representatives  chosen  by  the  barons  themselves.  Although  the  report  of 
this  commission  to  the  King's  Council  or  Parliament  at  Oxford  in  1258 
—  the  famous  Provisions  of  Oxford  —  was  annulled  in  1266,  the 
importance  of  the  event,  as  with  Magna  Carta,  derives  from  the 
repeated  use  of  royal  indebtedness  to  secure  redress  from  a  number  of 
royal  impositions.  These  baronial  protests  were  no  mere  empty 
gestures,  but,  according  to  Professor  Mitchell,  an  authority  on  medieval 
taxation,  represented  'a  revolutionary  change.  The  barons  on  the  great 
council  refused  to  grant  any  further  gracious  aids  that  took  the  form  of 
a  tax  on  personal  property',  so  that  'from  1237  to  1269  no  such  levy  was 
taken' (Mitchell  1951,  102). 

Increasing  indebtedness  forced  the  pace  of  commutation,  increased 
the  role  of  money  and  revealed  how  closely  interconnected  were  the 
royal  prerogatives  of  minting  money  and  raising  taxes.  The  king's 
power  to  profit  from  debasing  the  coinage  was  certainly  held  in  check 
by  the  Council  who  also  occasionally  even  managed  to  modify  the  form 
of  taxation  and  to  wrest  some  constitutional  advantage  in  return.  The 
fact  that  such  (for  those  days)  enormous  sums  of  money  could  be  raised 
so  quickly  gives  concrete  evidence  of  the  greatly  increased  wealth  and 
taxable  capacity  of  the  growing  population  during  the  commercial 
revolution  of  the  long  thirteenth  century  -  to  be  followed  by  what 
appeared  in  glaring  contrast  to  be  the  inspissated  doom  and  gloom  of 
the  fourteenth. 



The  Black  Death  and  the  Hundred  Years  War 

Although  famine  and  pestilence  had  always  afflicted  previous  ages,  the 
virulence  and  persistence  of  the  plagues  of  the  fourteenth  century  stand 
out  as  the  most  malign  in  the  history  of  mankind,  and  the  Black  Death 
(1348-50)  as  the  first  and  worst  of  the  whole  of  the  recurring  series,  the 
most  recent  of  which  was  that  of  1665-6.  The  flea-  and  rat-borne 
bubonic  plague  had  spread  quickly  from  central  Asia,  arriving  in  Sicily 
in  1347  via  a  ship  from  the  port  of  Kaffa,  a  Genoese  colony  in  the 
Crimea,  which  had  become  infected  when  a  besieging  Turkestan  army 
catapulted  into  the  colony  bodies  which  had  just  died  of  the  plague. 
The  plague  reached  Melcombe  Regis  near  Weymouth  in  Dorset  from 
Calais  in  August  1348,  and  by  1350  had  spread  throughout  the  British 
Isles  to  the  north  of  Scotland.  Few  regions  or  classes  escaped,  the  plague 
being  no  respecter  of  persons  or  provinces.  Thus  Joan,  daughter  of 
Edward  III  died  at  Bordeaux  on  the  way  to  her  anticipated  wedding; 
and  while  there  is  some  evidence  of  local  variations,  there  was  no 
pattern  of  marked  differences  between  town  and  country.  Although  the 
numbers  dying  in  each  of  the  later  plagues  were  less  than  in  the  first 
case  of  1348-50,  their  influence  in  the  fourteenth  century  on  prolonging 
and  intensifying  the  fall  in  population  was  probably  even  greater,  since 
they  affected  the  younger  age  groups  with  special  severity  and  so 
contributed  disproportionately  to  the  fall  in  the  birth  rate.  Plagues  of 
some  sort  or  other  (and  not  simply  bubonic  plagues)  became  endemic 
with  hardly  a  year  passing  without  renewed  outbreaks  in  some  region 
or  other  and  with  really  major  plagues  recorded  in  1361,  1369,  1375, 
and  1379  followed  by  plagues  of  national  proportions  in  1400,  1413, 
1434,  1439  and  1464.  Plagues  prevailed  in  sixty  years  in  England 
between  1348  and  1593,  and  returned  in  a  final  major  epidemic  in  1665. 

The  cumulative  result  was  that  the  population  of  England,  which  had 
risen  to  a  peak  of  between  four  and  five  million  in  1300,  had  fallen  by  50 
per  cent  or  so  by  1425,  back  to  the  kind  of  level  obtaining  in  1175.  All 
such  figures  are  approximate,  for  despite  the  two  bench-mark  statistics 
supplied  by  the  Domesday  survey  of  1086  which  mentioned,  as  we  have 
noted  previously,  some  283,242  persons,  and  the  Poll  Tax  returns  of 
1377,  which  gave  the  total  number  of  those  actually  paying  the  tax  as 
1,386,196,  the  margins  of  error  remain  wide.  There  is  some  evidence 
that  the  population  was  already  beginning  to  decline  before  the  arrival 
of  the  Black  Death  in  1348  —  a  feature  which  would  have  been  of  minor 
importance  had  it  not  given  rise  to  contention  among  historians  who 
became  tired  of  what  they  assumed  to  be  a  simplistic  tendency  to 
ascribe  to  the  Black  Death  trends  which  to  the  careful  historian  were 



clearly  visible  before  that  calamity.  Whereas  many  of  these  arguments 
are  irrelevant  to  our  main  theme,  some  of  them  have  a  direct  bearing  on 
the  development  of  money  and  prices  in  the  fourteenth  and  fifteenth 

The  arguments  among  the  experts  about  the  influence  of  the  plagues 
on  money  and  prices  are  still  very  much  alive.  The  overriding, 
unmistakable,  traditional  view  needs  to  be  emphasized  that,  whether  or 
not  the  economic  changes  ascribed  to  the  Black  Death  originated 
earlier,  there  can  be  little  doubt  as  to  the  devastating  results  of  the 
plagues  in  swamping  all  previous  trends,  obliterating  some  and 
enormously  accelerating  others.  Furthermore,  since  the  direct  effects  of 
the  plagues  were  so  appallingly  all-embracing,  it  is  bound  to  be 
somewhat  distorting  to  narrow  the  focus,  as  we  must,  simply  to  deal 
with  its  economic  and  financial  effects.  There  is  much  merit  in  the 
following  conclusion  given  by  Professor  W.  C.  Robinson  in  an 
interesting  discussion  of  this  subject:  'The  present  trend  to 
"revisionism"  notwithstanding,  the  Black  Death,  wars,  and  other 
disruptions  which  wracked  Europe  for  a  century  are  still  the  best 
explanation  of  the  sudden  collapse  of  economic  growth  and  population 
which  seem  to  have  occurred  in  the  late  Middle  Ages  .  .  .'  and  he 
reiterates  the  traditional,  classical  view  that  'changes  in  the  money 
supply  were  probably  the  most  important  single  factor  in  the  price 
changes  which  occurred  in  medieval  and  early  modern  times'  (W.  C. 
Robinson  1959,  76:  see  also  Postan  1972;  Gregg  1976;  E.  King  1979). 

The  nature  of  medieval  markets,  a  severe  shortage  of  labour,  a  drastic 
fall  in  output,  an  initially  unchanged  money  stock  and  a  fall  in  the 
velocity  of  money:  these  are  the  five  factors  which,  working  in  variously 
weighted  combinations,  help  to  explain  the  influence  of  the  plagues  on 
the  course  of  financial  development  in  the  fourteenth  and  fifteenth 
centuries.  Medieval  markets  exhibited  a  curious  and  changing  mixture 
of  long-term  price  stability  in  some  respects,  together  with  extreme 
volatility  of  prices  in  other  respects.  Where  feudal  ties  remained  strong, 
customary  monetary  payments  as  well  as  payments  in  kind  tended  to 
remain  stable,  though  obviously  the  market  value  of  that  part  of  the 
harvest  received  by  knight,  lord  or  bishop  from  his  serfs,  villeins  or 
peasants  would  fluctuate  considerably  whether  or  not  they  were 
supplied  in  kind.  Agriculture  was  still  by  far  the  dominant  sector,  and 
with  levels  of  productivity  low  (except  in  the  special  case  of  wool)  the 
supply  available  for  the  market  was  generally  simply  the  volatile, 
weather-controlled  surplus  left  over  from  meeting  the  needs  of  the  local 
community.  There  is  considerable  evidence  of  relative  'overpopulation' 
up  to  the  early  fourteenth  century,  so  that  famine  prices  for  foodstuffs 



recurred  from  time  to  time.  Medieval  markets  were  usually  'thin',  that 
is,  the  volume  of  goods  available  at  a  particular  price  was  very  limited 
and  so  were  stocks  compared  with  the  situation  in  more  modern  times. 
Transport  was  slow  and  transport  costs,  particularly  for  the  bulky 
goods  which  predominated  in  an  agricultural  society,  were  heavy.  Local 
shortages  could  not  be  readily  or  inexpensively  relieved  and  neither 
could  the  impact  of  local  surpluses  be  readily  siphoned  away  to  other 
areas  so  as  to  maintain  price  levels  locally.  Furthermore,  on  the  physical 
production  side,  agricultural  output  could  not  be  easily  managed  or 
brought  easily  into  rapid  relationship  with  changing  demand. 
Unavoidable  waste  and  high  inelasticities  of  supply  made  for  widely 
fluctuating  prices  despite  all  the  inbuilt  attempts  of  feudalism  to  impose 
some  sort  of  order  and  stability  over  the  power  of  the  markets. 

When  upon  this  normal  instability  was  imposed  the  key  shortage  of 
manpower  occasioned  by  the  plagues,  then  the  way  was  opened  for  a 
long  and  bitter  struggle  for  freer  labour  markets,  marked  not  only  by  an 
inevitable  upward  trend  in  wages  but  by  increased  expectations  of 
liberty  and  of  the  removal  of  the  irksome  personal  bonds  imposed  by 
the  feudal  system.  The  'land  hunger'  of  the  thirteenth  century,  even  if  it 
had  been  growing  less  serious  in  the  first  part  of  the  fourteenth  century, 
was  now  suddenly  replaced  by  an  unmanageable  surplus  of  land,  as 
around  one-third  of  the  labour  force  died  in  1348-9.  Far  higher  death 
rates  occurred  in  certain  regions  so  that  the  resulting  disruption  to 
customary  work  programmes  resulted  in  a  massive  fall  in  total  output. 

Most  prices  quickly  broke  through  their  customary  restraints  with 
the  price  of  the  scarcest  factor,  labour,  naturally  tending  to  rise  fastest. 
The  poor  always  have  a  high  income  elasticity  of  demand  for  food,  and 
consequently  the  rise  in  wages  helped  to  maintain  food  prices  at  a 
higher  level  than  those  for  hand-crafted  or  literally  'manufactured' 
goods.  This  explains  why  a  relative  land  surplus,  coinciding  with 
unprecedented  high  wages  in  a  labour-intensive  agricultural  society, 
together  with  a  drastic  fall  in  total  output  led  to  reduced  rents  and 
profits  for  the  landowners  despite  the  marked  tendency  to  forsake 
marginal  land.  Costs  rose  faster  than  profits;  and  this,  quite  apart  from 
the  appalling  effects  of  the  Black  Death  itself,  reduced  business  and 
farming  incentives  and  demoralized  the  nascent  entrepreneurial  spirit 
even  in  those  sections  of  the  economy  -  such  as  wool,  cloth,  wines, 
charcoal  and  metals  —  which  were  already  sensitive  to  the  normal 
market  forces  of  demand  and  supply  in  medieval  times.  Although  of 
course  no  nationwide  figures  of  wages  actually  being  paid  are  available, 
and  whereas  regional  differences  are  known  to  have  been  considerable, 
a  general  picture  of  the  rise  in  wages  may  be  seen  from  the  following 



examples  given  by  Professor  Hatcher  (1977,  49):  thus  the  daily  wage 
rate  for  a  labourer  was  about  lVid.  in  1301,  was  still  only  VAd.  in  1331, 
then  rose  much  faster  to  about  3V*d.  in  1361.  A  carpenter  earned 
around  23/«/.  a  day  in  1301,  nearly  Ad.  in  1351  and  about  AlAd.  in  1361. 
Although  by  modern  inflationary  standards  such  rises  may  appear 
piffling,  they  seemed  devastating  to  contemporary  employers,  and  a 
violation  of  the  accepted  morality  of  the  'just'  price. 

The  change  from  cheap  to  dear  labour  was  strongly  resisted  by  the 
landlords  and  by  Edward  III,  who  quickly  issued  a  restrictive  Ordinance 
in  1349,  followed  by  a  fuller  and  more  formal  Statute  of  Labourers  from 
Parliament  when  it  met,  for  the  first  time  after  the  Black  Death,  in  1351. 
It  had  been  called,  according  to  Edward's  own  account,  'because  the 
peace  was  not  well  kept,  because  servants  and  labourers  would  not 
work  as  they  should,  and  because  treasure  was  carried  out  of  the 
Kingdom  and  the  realm  impoverished  and  made  destitute  of  money' 
(Feavearyear  1963,  19).  We  shall  therefore  first  examine  Parliament's 
resultant  policy  on  law  and  order,  employment  and  wages,  and  then 
look  at  the  measures  adopted  to  cope  with  the  damaging  export  of  coin 
and  bullion.  The  king  saw  clearly  that  these  were  but  two  sides  of  the 
same  problem  -  of  what  we  would  call  internal  cost-push  inflation  and 
external  exchange  rates.  The  Statute  of  Labourers  stipulated  the 
maximum  rates  of  pay,  at  pre-plague  levels,  which  were  to  apply  to  all 
the  main  occupations;  it  also  stated  that  all  able-bodied  men  under 
sixty  should  be  forced  to  work;  and  it  severely  restricted  not  only  the 
mobility  of  labour  between  jobs,  but  actual  freedom  of  movement 
between  villages.  These  provisions  were  to  apply  to  all  workers  and  not 
just  villeins.  Despite  the  fact  that  such  severe  restrictions  could  not  be 
uniformly  enforced,  the  repeated  attempts  to  do  so  unified  the 
economic,  political,  religious  and  social  grievances  and  led,  eventually, 
to  the  Great  Rebellion  of  1381. 

The  law  might  hinder,  but  it  could  not  prevent,  the  profound  changes 
in  the  value  of  money  from  benefiting  the  labouring  classes.  Because 
wage  rates  rose  much  faster  than  prices,  and  because  output  per  head 
also  actually  rose  despite  the  decline  in  total  national  output,  the  real 
wages  of  the  working  classes  tended  to  rise,  with  few  reverses,  for  a 
century  and  a  half  throughout  most  of  the  fourteenth  and  fifteenth 
centuries.  Hence  the  paradox  of  patches  of  real  progress  amid  the 
general  secular  depression  of  these  centuries;  a  paradox  that  helps  us  to 
see  the  compatibility  of  the  apparently  totally  contradictory  views  such 
as  'Postan's  tale  of  recession,  arrested  economic  development  and 
declining  national  income'  and  'Bridbury's  proclamation  of  an 
astonishing  record  of  resurgent  vitality  and  enterprise'  (Hatcher  1977, 



36).  This  patchy  economic  progress  was  accompanied  by  rising 
expectations  among  the  working  classes  and  a  growing  resentment 
against  the  established  authorities  of  Church  and  state.  What  finally 
turned  this  smouldering  resentment  into  open  and  widespread  rebellion 
was  the  imposition  of  new  taxes  to  meet  the  increasingly  irksome  costs 
of  the  Hundred  Years  War,  a  series  of  bloody  conflicts  that  between 
1338  and  1453  helped  to  destroy  the  old  feudal  system  on  both  sides  of 
the  Channel. 

If  we  use  the  generally  familiar  'Fisher  identity'  of  MV=PT  to  help  to 
interpret  the  changes  in  the  value  of  money  in  the  century  or  so 
following  the  Black  Death  we  can  readily  see  that  the  enormous 
reduction  in  total  transactions  (T)  combined  with  an  initially 
unchanged  quantity  of  money  (M)  would  be  bound  to  lead  to  a 
substantial  increase  in  prices  (P)  which  for  the  reasons  already  given,  led 
especially  to  increased  wages  (I.  Fisher  1911).  However,  the  substantial 
decline  in  the  velocity  of  circulation  of  money  (V)  acted  to  moderate  the 
rise  in  prices.  An  even  stronger  and  longer-lasting  influence  in 
preventing  the  huge  surplus  of  money  from  having  its  full  price-raising 
effect  on  the  reduced  quantities  of  goods  being  produced  by  the 
repeatedly  decimated  population  was  the  enormous  drain  of  money 
from  England  to  the  Continent  chiefly  because  of  the  high  cost  of  wars 
but  also  because  of  other  monetary  and  trade  factors.  Among  the  most 
important  of  these  other  drains  -  or  'leakages'  as  we  now  term  these 
reductions  in  consumer  spending  power  -  were  the  heavy  taxes  imposed 
by  governments  which  diverted  incomes  from  spending  on  internal 
consumption  mainly  to  expenditures  abroad  to  support  the  army.  A 
similar  leakage  occurred  through  the  importation  of  luxury  goods, 
which  partly  explains  the  antipathy  shown  by  John  Wycliffe  and  his 
'Lollards'  against  the  debilitating  and  sinful  influence  of  rich  foreigners, 
who  acted  prominently  as  import  agents  in  London,  and  who,  as  in  the 
biblical  parable  of  the  tares,  sowed  their  moral  weeds  or  'tares'  on  good 
English  soil  (Latin  'lolia'  =  tares).  An  external  leakage  exerting  a  direct 
influence  on  the  money  supply  was  the  continued  selection,  or  'culling', 
of  English  silver  and  the  new  gold  coins  for  export.  Despite  some 
replacement  by  debased  imitations  from  abroad,  the  quality  of  these 
was  such  that  they  were  not  so  readily  accepted  in  payment,  and 
therefore  failed  to  do  much  to  offset  the  persistent  foreign  drain. 

The  unofficial  drain  of  gold  and  silver  bullion  and  coinage  stirred  the 
wrath  of  the  administration  and  caused  it  in  1351  to  strengthen  the 
previous  prohibitions  on  export  (such  as  that  issued  in  1299  and  known 
as  the  Statute  of  Stepney),  but  to  no  great  practical  effect.  The 
unofficial  drain  was  supplemented  by  the  government's  decision  to  set 



up  an  English  mint  to  produce  English  coin  in  Calais,  which  remained 
in  existence  from  1347  to  1440.  This  extension  of  circulation  made  it  all 
the  easier  for  overseas  imitators  to  pass  their  inferior  'esterlin' 
currencies.  The  fact  that  foreign  debasement  proceeded  at  a  faster  pace 
than  that  of  the  English  currency  tended  to  produce  repeated  strains  on 
the  balance  of  trade,  for  the  financial  pressures  of  the  strong  pound 
were  bound  to  make  it  that  much  harder  to  export  and  easier  to  import 
goods  which  again  contributed  to  the  export  leakage  of  coin  and 
bullion.  To  try  to  eliminate,  or  at  least  to  reduce,  the  temptation  offered 
to  illegal  exporters  of  coin,  the  weight  of  the  penny,  which  had 
remained  almost  unchanged  for  200  years,  was  slightly  reduced  by 
Edward  III  in  1344  and  reduced  more  substantially  by  him  in  1351,  the 
total  reduction  of  the  silver  content  of  the  coinage  over  those  seven 
years  being  19  per  cent.  Parliament  was  not  happy,  and  by  the  Statute  of 
Purveyors  of  1352  expressed  the  hope  that  the  king  would  no  more 
tamper  with  the  coinage  than  with  the  standards  of  weights  and 

Two  further  aspects  which  contributed  to  a  reduction  of  surplus 
money  relative  to  the  gross  fall  in  the  national  product  were,  first,  that 
during  times  of  war  and  plague  hoarding  increased,  so  removing  coin 
from  circulation,  a  process  which  applied  also  to  much  of  the  foreign 
coin  brought  back  by  the  victorious  army.  Secondly,  coins  wore  out  and 
the  mint  was  inactive  for  long  periods,  so  that  the  previous  replacement 
rate  was  reduced.  Thus  the  recoinage  associated  with  the  new  policy  of 
devaluation  stimulated  an  average  annual  rate  of  production  of 
£100,000  of  gold  coin  and  £50,000  of  silver  coin  in  the  five  years  from 
1351  to  1355  inclusive,  whereas  the  average  annual  rates  fell  to  only  £9,500 
of  gold  coins  and  £900  of  silver  coins  in  the  whole  of  the  thirty-nine 
years  from  1373  to  1411  inclusive.  Thus  instead  of  the  same  amount  of 
money  chasing  half  as  many  goods  and  practically  half  as  many 
workers,  the  reduction  of  the  excess  money  supply  by  these  various 
means  considerably  moderated  the  inflationary  impact  of  the  plagues. 

So  long  as  the  war  with  France  yielded  its  harvest  of  victories  and 
ransoms  the  burdens  did  not  seem  insupportable.  The  increased 
revenues  required  for  war  were  obtained  at  first  by  a  combination  of  old 
taxes  and  customs  duties  raised  to  new  heights,  supplemented  by  a 
relatively  small  amount  of  borrowing.  In  the  Middle  Ages  wool  was  by 
far  the  principal  export  and  the  main  source  of  royal  revenue.  The 
export  of  'England's  golden  fleece',  the  'goddess  of  merchants',  was 
controlled  by  the  Society  of  Staplers,  the  oldest  company  of  merchants 
in  British  overseas  trade.  They  made  Calais  for  two  centuries  their 
'staple'  port  from  the  time  of  its  capture  by  Edward  in  1347  until  its  loss 



by  broken-hearted  Mary  I  in  1558.  Calais  therefore  was  doubly 
important  to  the  English  monarch  —  as  his  mint  and  as  his  most 
abundant  source  of  trade-based  revenue.  The  customary  duty  on  wool 
was  raised  from  6s.  8d.  to  an  average  of  405.  a  sack  in  1338,  with  foreign 
merchants  having  to  pay  a  surcharge  above  that  paid  by  English 
merchants.  In  the  course  of  the  next  five  years  England's  golden  fleece 
lived  up  to  its  name  by  supplying  more  than  £1  million  to  the  royal 
Exchequer.  Edward  also  profited  directly  by  purchasing  the  greater  part 
of  the  wool  crop  himself  at  low  prices  and  selling  it  through  Calais  at 
much  higher  prices.  Thus  monetary,  fiscal  and  trade-protection  policies 
were  neatly  integrated.  On  balance  the  Calais  mint  was  not  therefore  an 
abberation  but  a  logical,  convenient  and  long-lasting  result  of 
convergent  military,  monetary  and  taxation  pressures.  The  high  tax  on 
raw  wool  exports,  of  around  33  per  cent  in  value,  combined  with  a  low 
tax  on  cloth  of  only  about  2  per  cent  in  value,  helped  to  stimulate  cloth 
manufacture  in  England,  but  led  to  a  substantial  decline  in  raw  wool 
exports  and  so,  as  an  unfortunate  by-product,  resulted  in  a  considerable 
fall  in  royal  revenues  from  this  source.  This  in  turn  contributed  to  the 
growing  urgency  to  find  other  sources  of  taxation  in  the  period  1377  to 

The  net  military  balance  of  ransom,  loot,  bounty  and  plunder  tended 
to  favour  the  English,  particularly  during  the  early  stages  of  the  war,  as 
shown  by  the  victories  of  Sluys  in  1340,  Crecy  in  1346  and  Poitiers  in 
1356,  which  latter  yielded  the  highest  prize  of  all  when  King  John  II  of 
France  was  captured.  A  vast  ransom  of  three  million  gold  crowns 
(£500,000)  was  demanded,  and  though  in  the  end  only  something  a 
little  less  than  a  half  of  this  was  in  fact  paid,  this  still  represented  a 
massive  amount,  some  four  times  larger,  we  may  note,  than  the  total  of 
all  the  poll  taxes  which  stirred  up  such  turmoil  a  generation  later.3  Part 
of  the  proceeds  was  used  to  rebuild  the  royal  apartments  of  Windsor 
Castle,  a  permanent  record  of  conspicuous  expenditure  typically 
engendered  by  such  windfall  riches.  The  3d.  a  day  paid  to  infantrymen, 
and  the  6d.  paid  to  archers  with  mounts,  were  poor  incentives 
compared  with  the  troops'  customary  one-third  share  of  ransom  money 
or  booty  (the  other  two-thirds  shared  equally  between  their  captain  and 
their  king).  When  the  tide  of  the  long  war  turned  against  England,  the 
net  costs  also  grew  far  heavier,  and  were  resented  all  the  more  since  it 
was  just  at  this  time  that  the  king's  advisers  decided  that  new  forms  of 
direct  taxes  had  to  be  levied.  New  taxes  are  always  detested,  especially 
poll  taxes,  whether  it  be  the  1380s  or  the  1980s. 

3  This  was  the  origin  of  the  'franc',  a  coinage  paid  for  the  King's  freedom. 



Poll  taxes  and  the  Peasants'  Revolt 

There  is  no  doubt  that  the  three  poll  taxes  of  1377,  1379  and  1381  acted 
as  the  trigger  for  the  Peasants'  Revolt  of  1381,  even  though  it  was  the 
long  build-up  of  social  and  economic  grievances  'between  the 
landowner  and  the  peasant,  which  had  started  with  the  Black  Death 
and  the  Statute  of  Labourers'  which  formed  the  most  important  group 
of  causes  (Oman  1981,  5).  The  penalties  of  the  Statute  were  repeatedly 
re-enacted  and  increased  in  severity  while  the  yield  of  indirect  taxes  fell 
with  the  decline  in  national  output. 

The  burden  of  taxes  was  soon  to  be  grossly  inequitable  because, 
whereas  the  percentage  fall  in  population  varied  from  district  to 
district,  no  reassessment  of  the  customary  burdens  of  tenths  and 
fifteenths  based  on  the  new  population  was  carried  out.  As  time  went 
on  these  distortions  grew  progressively  worse,  although  the  problem 
did  not  become  pressing  until  the  decade  following  1371,  when  the 
frequency,  amount  and  regressiveness  of  taxation  were  sharply 
increased.  These  new  burdens,  occasioned  by  the  disastrous  course  of 
the  war,  were  all  the  more  resented  because  they  stood  in  contrast  to  a 
preceding  period  of  some  twelve  years  (1359-71)  during  which  no  direct 
taxes  were  levied,  'this  being  one  of  the  longest  respites  from  taxation 
enjoyed  in  the  fourteenth  century'  (Fryde  1981,  xii). 

The  levying  of  flat-rate  taxes  on  all  'adults'  was  felt  by  the  king's  tax 
commissioners  to  be  fairer  than  trying  to  raise  the  same  amount  on  the 
basis  of  out-of-date  local  assessments  from  shires  and  towns. 
Furthermore,  many  of  the  formerly  poor  labourers  had  now  become 
relatively  much  better  off  and  could  afford  to  be  taxed  directly.  They 
had,  in  the  words  of  Piers  Plowman,  'waxed  fat  and  kicking',  and  it  was 
widely  felt  that  they  should  in  all  equity  contribute  their  share. 
Contemporaries  were  quite  aware  of  the  regressive  nature  of  poll  taxes, 
but  when  all  the  arguments  are  taken  into  account  there  seemed  in 
principle  to  be  a  perfectly  good  case  for  having  recourse  to  such  taxes. 
These  poll  taxes  were  therefore  levied  in  addition  to  the  ordinary  tenths 
and  fifteenths  and  certain  other  taxes  on  movables  which  were  also 
being  demanded  concurrently.  It  was  however  the  novelty  of  the  poll 
taxes,  and  especially  the  greatly  increased  burden  of  the  poll  tax  of 
1381,  which  finally  led  to  open  rebellion.  The  first  poll  tax  in  1377  was 
Ad.  for  all  'adults',  from  fourteen  years  old.  The  collectors  recorded 
1,355,201  such  taxpayers,  the  total  revenue  being  assessed  at  £22,586. 
135.  Ad.  Additionally,  a  miscellaneous  body  of  30,995  persons  were 
recorded  in  the  tax  returns  giving  a  total  (underestimated)  taxable 
'adult'  population  of  1,386,196.  This  gives  us  the  figure  mentioned 



above  as  the  base  from  which  estimates  of  the  total  population  of 
England  in  1377  have  been  derived,  such  estimates  being  very 
considerably  increased,  by  as  much  as  a  million  or  more,  as  a  result  of 
modern  research  (e.g.  see  Postan  1966). 

The  second  poll  tax  of  1379,  while  also  being  based  on  a  notional 
4c/.,  was  assessed  at  a  slightly  lower  total  of  £19,304,  because  it  was  in 
fact  carefully  graduated  according  to  social  status  and  was  therefore 
probably  the  most  equitable  of  all  the  direct  taxes  of  the  fourteenth 
century.  In  harsh  contrast,  the  third  poll  tax,  that  of  1381,  was  far  more 
severe.  It  was  assessed  at  £44,843,  or  double  that  of  each  of  the  previous 
taxes.  Every  lay  person  above  the  age  of  fifteen  had  to  pay  three  groats 
or  Is.,  triple  the  basic  rate  of  the  previous  polls.  Clerical  persons  were 
separately  assessed.  This  heavy  tax  was  felt  even  by  the  local  assessors 
to  be  so  unreasonable  that  they  connived  at  an  unprecedented  degree  of 
evasion  by  the  poorest,  upon  whom  the  burden  was  clearly 
insupportable.  In  the  two  previous  polls  the  heaviest  tax  paid  by  the 
poorest  was  Ad.  In  1381  they  were  expected  to  pay  the  whole  shilling 
with  very  few  exceptions.  The  degree  of  evasion  is  shown  by  the  fact 
that  the  recorded  taxable  population,  though  free  of  plague,  fell  by  a 
fifth  as  a  national  average,  with  some  regions  registering  an  apparent 
fall  of  more  than  a  half.  When  the  commissioners  of  the  tax  attempted 
to  punish  the  tax  dodgers,  open  rebellion  broke  out  in  town  and 
countryside  involving  over  half  the  kingdom.  Despite  the  promises  of 
constitutional  amendments,  given  by  the  young  King  Richard  II 
(1377-99)  to  the  rebellious  hordes  in  London,  the  revolt  was  eventually 
suppressed,  leaving  at  least  a  warning  and  a  series  of  unanswered 
questions  that  still  vex  the  experts  to  this  day. 

The  revolt  had  been  brought  about  by  a  whole  complex  of  causes  — 
social,  political,  religious  and  economic  as  well  as  fiscal.  But  the 
attempt  to  restrict,  depress  and  overtax  townsmen  and  agricultural 
workers  who  had  for  more  than  a  generation  been  experiencing  a  rise  in 
their  real  standard  of  living  was  a  vital  catalyst  in  this  whole  confused 
complex  of  causes.  A  key  factor  was  the  king's  need  to  raise  more  taxes 
from  a  falling  population  which  was  individually  growing  somewhat 
richer  but  which  in  the  aggregate  was  becoming  markedly  poorer.  Wars, 
plagues  and  poll  taxes  proved  to  be  a  most  inflammatory  mixture.  (The 
Thatcherite  administration,  600  years  later,  had  to  relearn  the  dangers 
of  trying  to  poll  tax  the  populace.)  Fleas  and  taxes,  not  just  silver  and 
gold,  had  become  major  determinants  of  the  real  value  of  money. 



Money  and  credit  at  the  end  of  the  Middle  Ages 

During  the  Middle  Ages  as  whole,  however  coinage  dominated 
European  monetary  development.  In  England,  a  country  which  had 
uniquely  reverted  to  barter  in  the  fifth  century,  a  new  indigenous 
coinage  based  first  on  gold  and  then  more  firmly  on  the  silver  penny 
gradually  emerged  during  the  seventh  century,  and  thereafter  that  little 
coin  dominated  England's  monetary  development  for  over  500  years 
until  it  became  marginally  supplemented  by  gold  in  the  fourteenth 
century.  Subsequently  an  uneasy  bimetallic  marriage  was  to  last  until 
the  beginning  of  the  nineteenth  century.  Medieval  money  was  above  all 
monarchical  money,  and  monetary  policy  was  among  the  most  closely 
guarded  personal  prerogatives  of  the  king,  though  the  Great  Council 
and  Parliament  were  not  without  influence.  The  connection  with  fiscal 
policy,  therefore,  was  direct  and  clear,  and  it  was  at  first  mainly  in 
connection  with  the  king's  need  to  tax  and  borrow  that  credit 
instruments  of  a  quasi-monetary  character  also  developed.  The  bill  of 
exchange  was  a  foreign  innovation  which  spread  to  England  in 
connection  with  the  trade  in  wool  and  wine  and  the  collection  and 
distribution  of  papal  dues.  Although  the  wooden  tally  had  developed 
universally  as  a  receipt,  nowhere  else  did  it  reach  the  heights  it  achieved 
in  England  as  a  quasi-monetary  instrument.  Despite  the  considerable 
development  of  credit,  its  monetary  significance  still  remained 
secondary  to  coins  in  England  until  after  the  end  of  the  Middle  Ages,  a 
feature  which  in  terms  of  its  scale  helps  to  distinguish  modern  from 
medieval  times. 

There  were  three  types  of  coinage  recycling  prevalent  in  Europe 
during  medieval  times,  and  although  evidence  of  all  three  is  to  be  seen 
in  England,  only  two  of  these  types  were  resorted  to  extensively  on  the 
English  side  of  the  Channel.  The  three  types,  in  rough  chronological 
order,  may  be  termed,  first,  revisionist  or  replacement;  second, 
restoration  or  repair;  and  third,  debasement  or  devaluation  with  or 
without  adulteration. 

Because  of  the  high  convenience  of  royally  authenticated  coinage  as  a 
means  of  payment,  and  with  hardly  any  other  of  the  general  means  of 
payment  available  in  the  Middle  Ages  being  anything  like  as  convenient, 
coins  commonly  carried  a  substantial  premium  over  the  value  of  their 
metallic  content,  more  than  high  enough  to  cover  the  costs  of  minting. 
Kings  could  turn  this  premium  into  personal  profit;  hence  the 
apparently  puzzling  feature  of  the  wholesale  regular  recall  of  coinage 
which  was  described  earlier,  first  at  six -yearly,  then  at  three-yearly 
intervals,  and  eventually  about  every  two  years  or  so.  In  order  to  make  a 



thorough  job  of  this  short  recycling  process  it  was  essential  that  all 
existing  coins  should  be  brought  in  so  as  to  maximize  the  profit  and,  in 
order  to  prevent  competition  from  earlier  issues,  the  new  issues  had  to 
be  made  clearly  distinguishable  by  the  authorities  yet  readily  acceptable 
by  the  general  public.  These  regular,  complete  changes  in  the  whole 
currency  long  before  wear  and  tear  set  in,  have  been  dubbed  'revisionist' 
by  numismatists,  though  'replacement'  might  give  a  better  indication  of 
the  system. 

The  regular  wholesale  recall  and  reissue  of  coinage  was  of  course  a 
wasteful  and  costly  process  which  could  moreover  only  be  carried  out 
without  too  much  trade-crippling  delay  when  every  borough  had  its 
mint  and  when  the  total  amount  of  money  in  circulation  was  small 
enough  to  be  manageable.  The  process  of  centralizing  minting  in  the 
eleventh  and  twelfth  centuries  in  London,  as  opposed  to  operating  the 
seventy-five  or  so  mints  of  the  'revisionist'  period,  coincided  with  the 
rise  in  population,  the  growth  of  trade  and  an  expansion  of  the  money 
supply  which  together  made  the  continuation  of  the  old  'revisionist' 
cycle  far  less  viable.  Better  methods  of  raising  revenue  rendered 
revisionism  redundant.  The  'revisionist'  cycle  therefore  gave  way  to  the 
'restoration'  cycle  of  a  much  less  regular  type  since  it  depended  on  the 
supplies  and  prices  of  bullion  available  to  the  king  on  the  one  hand  and 
the  normal  processes  of  wear  and  tear  on  the  other  hand.  It  'topped  up' 
the  existing  money  supply  rather  than  completely  replacing  it,  and  so  it 
was  more  in  the  nature  of  a  piecemeal  repair  job  than  a  thorough 
renovation.  Whereas  under  'revisionist'  policies  complete  recoinage 
took  place  only  three  or  four  times  a  decade,  under  'restoration' 
policies  such  complete  recoinages  took  place  only  three  or  four  times  in 
a  century.  The  normal  restoration  rate  was  also  strongly  influenced  by 
the  loss  of  native  coin,  counterfeiting,  clipping,  sweating,  hoarding  and 
culling,  and  by  the  influx  of  inferior  'easterlins'  to  compete  with  native 
British  issues.  Although  the  king  and  his  advisers  soon  became  aware  of 
any  deterioration  in  the  quality  of  the  coinage,  and  although  most  of 
the  kings  of  England  and  all  of  their  counsellors  (in  contrast  to  the 
situation  abroad)  were  concerned  to  maintain  the  quality  of  the 
circulating  coin,  the  large-scale  minting  required  from  time  to  time  to 
maintain  the  quality  of  coins  in  circulation  had  by  then  become  a  costly 
business  with  no  guarantee  of  substantial  profit.  There  was  therefore  a 
general  tendency  to  postpone  and  to  limit  new  issues. 

The  recurring  shortage  of  coins  relative  to  growing  demand  —  a 
matter  of  recorded  concern  to  the  Parliaments  of  1331,  1339  and  1341  - 
was  such  that  the  counterfeiter  readily  stepped  in  to  fill  the  vacuum, 
thereby  in  effect,  if  not  intentionally,  performing  a  public  service. 



However,  although  the  counterfeiter  performed  his  dubious  public 
service  (at  the  risk  of  losing  hand  or  head)  by  increasing  the  quantity  of 
money,  to  the  extent  to  which  he  succeeded,  he  reduced  the  quality  of 
the  coinage  and  hastened  the  date  of  the  inevitable  official  restorative 
issue,  as  did  the  importer  of  foreign  substitutes.  When  to  these 
difficulties  is  added  the  variations  in  the  relative  value  of  gold  and  silver 
it  was  a  considerable  achievement  on  the  part  of  English  monarchs  that 
they  maintained  the  quality  of  sterling  to  such  a  high  degree  throughout 
the  Middle  Ages.  The  fact  that  England  was  the  first  country  in 
northern  Europe  to  have  a  single  national  currency  no  doubt  helped  to 
maintain  the  high  reputation  of  sterling,  whereas  the  numerous  minting 
authorities  on  the  Continent  indulged  in  a  form  of  continuous 
competitive  devaluation,  a  profound  difference  of  policy  which  widened 
the  gap  between  sterling  and  the  silver  currencies  overseas. 

The  third  type  of  recycling,  namely  debasement,  was  therefore 
virtually  absent  for  centuries  in  England  and  Wales  (but  common  in 
Scotland),  and  when  it  did  occur  was  very  mild  compared  with  that 
abroad.  Debasement  could  occur  either  through  making  coins  of  the 
same  nominal  value  lighter,  e.g.  the  number  of  pennies  minted  from  a 
given  weight  of  silver,  which  was  a  simple  'devaluation';  or  more 
drastically  and  deceitfully  by  mixing  cheaper  metal  with  the  precious 
metal,  i.e.  'adulteration';  or,  of  course,  a  combination  of  these  two 
methods.  Not  until  the  middle  of  the  sixteenth  century  did  debasement, 
as  operated  especially  by  Henry  VIII,  become  of  major  importance  for 
royal  revenue.  As  we  have  seen,  the  only  substantial  previous  reduction, 
and  this  was  in  terms  of  lighter  weight  rather  than  adulteration,  was 
that  of  Edward  III,  forced  on  him  by  the  more  rapid  debasement  of 
continental  currencies  next  door  to  his  Calais  mint.  Further 
debasements  by  weight,  for  the  silver  penny  and  the  gold  noble  and 
their  subsidiary  coins,  were  carried  through  by  Henry  IV  in  1412  of  17 
per  cent  and  by  Edward  IV  in  1464/5  of  20  per  cent.  On  average  all  the 
devaluations  in  England  over  the  whole  of  the  previous  two  centuries 
amounted  to  only  one-fifth  of  1  per  cent  per  annum,  which  was  hardly 
more  than  the  ordinary  loss  of  weight  through  normal  circulation.  The 
effects  on  the  value  of  sterling  were  therefore  relatively  small.  In  short, 
debasement  was  not  really  a  problem  in  England  before  the  sixteenth 

An  indication  of  the  wide  extent  of  the  differences  as  between 
English  and  continental  debasement  is  given  in  the  following 
comparison.  Whereas  the  weight  and  content  of  the  silver  penny  had 
been  maintained  practically  unchanged  for  four  centuries  before  1250, 
the  equivalent  coins  in  France  had  fallen  to  around  one-fifth  of  their 



original  value,  as  had  those  of  Milan.  Venetian  silver  coinage 
depreciated  to  one-twentieth  of  its  original  value  during  that  period. 
Between  1250  and  1500  even  the  pound  sterling  fell  in  weight  by  a  half, 
and  while  the  rate  of  depreciation  of  the  silver  currencies  of  France, 
Milan  and  Venice  moderated,  they  still  fell  by  70  per  cent,  that  is  at  a 
rate  still  appreciably  greater  than  sterling.  It  was  in  the  quality  of  their 
gold  florins  and  ducats  that  the  Italian  mints  took  justifiable  pride. 

Generations  of  historians  have  praised  the  moral  qualities  of  English 
kings  in  yielding  less  to  the  temptations  of  debasement  than  did 
foreigners.  Some  of  the  reasons  for  this  difference  have  already  been 
given  but  we  should  however  add  the  warning  that  superior-quality 
money  does  not  necessarily  indicate  a  superior  economic  performance. 
Sound  money  is  no  guarantee  of  a  sound  economy,  either  today  or  in 
the  Middle  Ages.  In  matters  of  finance  as  in  matters  of  trade,  it  was  the 
foreigner  with  his  poorer-quality  silver  coinage  and  his  superior 
supplements  and  substitutes,  such  as  gold  and  especially  the  paper  bill 
of  exchange  compared  to  our  wooden  tally,  who  led  the  way. 
Consequently  one  should  at  least  raise  the  question  of  whether 
medieval  England  was  crucified  on  a  cross  of  undebased  silver. 
Admittedly,  at  this  distance  of  time  it  is  unlikely  that  anyone  will  be  able 
to  come  up  with  a  convincing  answer.  Nevertheless,  unless  such 
questions  are  raised,  there  is  a  danger  of  almost  unconsciously  equating 
praise  for  the  moral  qualities  of  English  monarchs  and  their 
parliaments  in  upholding  sterling  with  the  unjustified  assumption  that 
the  result  was  good  for  the  economy  in  general  -  that  what  was  good 
for  the  sovereign  was  good  for  the  kingdom.  The  persistence  of  the 
external  drain,  the  incentive  given  to  counterfeiting,  the  peculiarly 
English  insistence  on  using  the  primitive  and  clumsy  tally  are  all 
indications  that  the  quantity  of  money  tended  over  the  long  run  to  lag 
behind  demand. 

Whilst  this  is  not  an  argument  for  saying  that  bad  money  is  good,  a 
posthumous  apotheosis  of  Gresham,  it  should  however  inhibit  the 
equally  false,  damaging  and  insidious  convention  that  intrinsically 
good  money  is  necessarily  good  for  the  economy.  There  is  a  tendency 
among  historians  with  a  natural  bias  towards  numismatology,  such  as 
Sir  John  Craig  and,  to  a  lesser  extent,  Professor  Grierson,  to  stress  the 
qualitative  superiority  of  sterling  without  equally  stressing  its  possible 
drawbacks.  Feavearyear  and  Cipolla  occupy  a  more  neutral  position 
and  draw  welcome  attention  to  problems  of  quantity,  or  relative 
scarcity,  inherent  in  maintaining  the  quality  of  sterling.  Professor 
Cipolla  puts  the  points  lucidly  thus:  'It  is  apparent  that  during  the 
Middle  Ages  the  countries  which  experienced  the  greatest  economic 



development  were  also  those  which  experienced  the  greatest 
debasement'  (Cipolla  1981,  201). 

The  two  views  of  money,  one  emphasizing  the  quality,  and  the  other 
the  quantity,  of  money  are  duplicated  in  similarly  contrasting  views 
about  the  quality  and  extent  of  the  use  of  credit  in  medieval  trade. 
Bishop  Cunningham,  writing  at  the  end  of  the  nineteenth  century,  was 
an  early  proponent  of  a  'primitivist'  view  of  English  credit,  minimizing 
its  importance:  'Transactions  were  carried  on  in  bullion;  men  bought 
with  coin  and  sold  for  coin  .  .  .  dealing  for  credit  was  little  developed, 
and  dealing  in  credit  was  unknown'  (Cunningham  1938, 1,  362,  463).  In 
contrast  Lipson,  Postan  and,  above  all,  Spufford  have  propounded  more 
'modernistic'  beliefs  (Lipson  1943,  I,  528  f£;  Postan  1954;  Spufford 

To  some  extent  monetary  constraints  were  alleviated  by  the  growth 
of  credit,  not  only  in  the  special  form  of  the  tally  but  also  in  a  variety  of 
other  ways  of  which  we  have  a  wealth  of  records.  According  to 
Professor  Postan  'there  cannot  be  many  topics  in  the  history  of  the 
Middle  Ages  on  which  the  evidence  is  as  copious  as  on  credit'  (1954,  I, 
63).  The  records  of  the  larger  and  more  important  of  such  credits  were 
formally  'recognized'  by  judicial  tribunals  and,  after  the  passing  of  the 
Statute  of  Burnell  of  1283,  were  centrally  registered  on  special  rolls. 
Although  the  abundance  of  these  and  of  many  similar  but  less  official 
records  of  debts  clearly  demonstrates  that  credit  commonly  entered  into 
commercial  practice,  unfortunately  it  leaves  open  the  question  as  to  the 
relative  importance  of  credit  as  opposed  to  cash  transactions. 
Wholesale  trade  in  wool,  cloth,  wine,  tin  and  so  on  was  heavily 
dependent  on  credit,  with  the  great  Italian  merchant  banking  houses, 
those  of  Bardi,  Peruzzi  and  Ricardi  being  among  the  most  prominent. 
All  stages  in  the  woollen  clothing  industry,  although  organized 
technically  on  the  domestic  system,  were  typically  based  on  the 
wholesale  extension  of  credit.  Sales  of  land  and  of  rents,  which  modern 
research  shows  to  have  been  much  more  common  than  was  formerly 
believed,  were  commonly  conducted  through  extending  credit.  As  we 
have  already  seen  with  regard  to  the  tally  and  the  bill  of  exchange,  a 
significant  proportion  of  such  activities  was  'fictitious'  rather  than 
'real',  a  means  of  hiding  the  illegal  payments  of  interest,  but  the  great 
majority  were  genuine  transactions  pointing  to  the  growing  and 
pervasive  use  of  credit  in  medieval  trade  -  not  only  in  London  and  other 
ports  but  also  inland. 

Such  evidence  enabled  Postan  to  demolish  a  view  strongly  held  by 
earlier  economic  historians  that  dealing  for  credit  was  little  developed, 
and  to  cast  doubt  also  on  the  belief  that  dealing  in  credit  was  unknown. 



The  evidence  already  given  of  the  discounting  of  tallies  and  of  bills  of 
exchange  shows  clearly  that  dealing  in  credit  had  also  in  fact  long  been 
fairly  common  in  medieval  England.  Whereas  the  quality  of  sterling 
was,  if  anything,  relatively  too  high  because  its  quantity  was  limited,  both 
the  quality  and  quantity  of  its  credit  instruments  were  crude  and  limited 
compared  with  the  use  of  credit  in  the  main  financial  centres  of  Europe. 
The  prohibition  of  usury  undoubtedly  distorted  the  money  markets  of 
medieval  Europe  and  tended  to  favour  both  a  more  extensive  use  of 
coinage  and  a  greater  recourse  to  foreign  exchange  in  the  form  of  coins 
and  bullion  and  through  'fictitious'  bills  of  exchange  than  would 
otherwise  have  been  the  case.  Sterling  was  therefore  much  more  widely 
used  than  simply  within  the  domestic  economy,  being  a  preferred  silver 
currency  over  much  of  northern  Europe,  though  playing  very  much  a 
secondary  role  in  international  trade  when  compared  with  the  gold  florins 
of  Florence  or  Ghent,  or  the  ducats  of  Venice  (Spufford  1988,  321,  381). 

Despite  its  sterling  qualities,  England  remained  a  backward,  primitive 
country  in  European  terms,  just  as  did  Europe  compared  with  China, 
throughout  the  Middle  Ages,  a  feature  made  more  and  more  obvious  by 
the  wider  contacts  and  by  the  marked  growth  in  trade  towards  the  end  of 
the  period.  Thus  in  the  middle  of  the  fifteenth  century  England  was  still, 
according  to  Professor  D.  C.  Coleman, 

on  the  near  fringes  of  the  European  world,  economically  and  culturally  as  well 
as  geographically  .  .  .  Aliens  still  controlled  about  40%  of  English  overseas 
trade  .  .  .  London  was  overshadowed  in  wealth  and  size  by  the  great  cities  of 
continental  Europe,  and  nothing  in  England  even  began  to  match  such  a 
manifestation  of  wealth  and  power  as  the  Medici  family  controlling  the 
biggest  financial  organisation  in  Europe.  (1977,  48) 

Although  the  continuity  of  economic  life  makes  almost  any  precise 
date  dividing  medieval  from  modern  times  artificial  and  arbitrary,  there 
would  appear  to  be  no  sufficiently  strong  reason,  from  the  point  of  view 
of  financial  development,  to  depart  from  the  traditional  date  of  1485  or 
thereabouts.  The  end  of  the  Wars  of  the  Roses  in  1485  plainly 
demonstrated  the  end  of  baronial  power  since  all  their  fine  castles,  when 
put  to  the  test  (with  the  exception  of  Harlech)  had  been  easily  subdued  by 
modern  weapons.  Already  the  longbow  had,  in  the  course  of  the  previous 
century  and  a  half,  brought  the  knight  in  armour  down  from  his  high 
horse  and  so  symbolized  the  end  of  feudalism.  But  it  is  not  so  much  the 
fading  of  the  old  as  the  brilliance  of  the  new  which  puts  the  appropriate 
dividing  date  conveniently  near  to  the  time  when  Henry  Tudor  plucked 
Richard  Ill's  crown  from  the  thorn-bush  in  Bosworth  Field.  It  would  seem 
to  be  essential,  therefore,  to  take  the  end  of  the  Middle  Ages  as  occurring 



just  before  the  discovery  of  the  New  World  by  Columbus  in  1492.  The  fall 
of  Constantinople  in  1453  provides  a  similar,  roughly  contemporary 

The  modern  monetary  age  thus  began  with  the  geographic 
discoveries,  with  the  full  fruition  of  the  Renaissance,  with  Columbus 
and  El  Dorado,  with  Leonardo  da  Vinci,  Luther  and  Caxton;  in  short 
with  improvements  in  communications,  minting  and  printing.  A  vast 
increase  in  money,  minted  and  printed,  occurred  in  parallel  with  an 
unprecedented  expansion  in  physical  and  mental  resources.  The 
inventions  of  new  machines  for  minting  and  printing  were  in  fact 
closely  linked  in  a  manner  highly  significant  for  the  future  of  finance. 
At  first  the  increase  in  coinage  was  to  exceed,  and  then  just  to  keep  pace 
with  the  increase  in  paper  money;  but  eventually  and  inexorably  paper 
was  to  displace  silver  and  gold,  and  thereby  was  to  release  money  from 
its  metallic  chains  and  anchors.  The  apparently  complete  victory  of  the 
abstract  over  the  concrete,  the  triumph  of  fiction  over  truth,  provides 
the  main  theme  and  interest  of  the  story  of  the  five  centuries  from 
Columbus  to  Keynes. 


The  Expansion  of  Trade  and  Finance, 

The  most  spectacularly  obvious  difference  between  the  old  era  and  the 
new  was  the  discovery  by  Europeans  of  the  New  World  of  the  West 
Indies  and,  at  least  in  outline,  North  and  South  America,  most  of 
Africa,  South-East  Asia,  and,  after  a  long  pause,  Australia  and  New 
Zealand.  The  great  oceans  of  the  world  had  been  opened  up  through 
the  daring  of  the  European  seaman,  supported  by  royal  sponsorship 
and  joint-stock  finance.  In  less  than  a  decade  following  Columbus's 
first  voyage  of  1492,  the  size  of  the  world  known  to  Europeans  was 
more  than  doubled.  Within  a  generation  it  was  more  than  trebled.  In  no 
other  age  of  history  has  geographical  knowledge  become  so  suddenly 
and  breathtakingly  extended.  Thereafter  new  geographical  discoveries 
suffered  universal  diminishing  returns,  and  exploitation  of  the  partially 
known  replaced  investigation  of  the  vast  unknown. 

Of  much  more  importance  initially  than  the  discovery  of  new  lands 
was  the  finding  of  new  routes  to  the  already  well-known  trading  centres 
of  the  ancient  East.  Among  the  many  strong  motivations,  this  was 
probably  the  main  reason  behind  the  early  voyages  of  discovery. 
Authoritative  records  of  the  motives  of  the  early  Portuguese  explorers 
make  it  'clear  that  none  of  them  ever  trouble  themselves  to  sail  to  a 
place  where  there  is  not  sure  and  certain  hope  of  profit'  (Needham 
1971,  IV,  529).  Columbus  was  known  to  be  much  impressed  by  Marco 
Polo's  published  accounts  of  the  wealth  of  China  and  wished  to  achieve 
on  a  much  greater  scale  by  sea  what  had  previously  been  interruptedly 
accomplished  to  a  very  limited  extent  by  the  traditional  overland 
caravans.  Consequently  up  to  Columbus's  death  in  1506  he  had 

What  was  new  in  the  new  era? 



remained  singularly  convinced  that  the  (West)  'Indies'  which  he  had 
discovered  were  just  useful  stepping-stones  to  the  wealth  of  Japan, 
China  and  India.  His  voyages  were  therefore  seen  by  his  sponsors  as 
well  as  by  himself  as  simply  complementary  to  the  whole  series  of 
expeditions  from  Portugal  and  Spain,  culminating  in  Vasco  da  Gama's 
successful  arrival  in  India  in  1498  via  the  aptly  named  Cape  of  Good 
Hope,  previously  the  Cape  of  Storms.  Apart  from  the  belated,  almost 
obsolete,  crusading  motives  and  the  new  spiralling,  political  and 
nationalistic  rivalries,  the  main  and  constant  inspiration  which  spurred 
the  voyages  of  discovery  was  the  profit  to  be  derived  from  trade. 

Not  least  among  the  desires  of  the  richer  sections  of  European 
society  were  the  luxuries  of  the  East  -  fine  cottons,  silks,  carpets, 
porcelain,  spices  -  including  cinnamon,  mace,  cloves,  ginger  and  pepper 
-  indigo,  slaves,  pearls,  precious  stones,  and  above  all  the  precious 
metals.  Greed  for  gold  was  always  a  most  dominant  motive  and  it  was 
the  influx  of  precious  metals  which  had  the  most  direct  and  obvious 
effects  on  monetary  developments  in  Europe,  first  in  Spain  and 
Portugal,  but  subsequently  spreading  in  turn  through  Italy,  France,  the 
Low  Countries  and  the  rest  of  Europe,  including  Britain,  during  the 
sixteenth  and  seventeenth  centuries.  Thus,  when  it  came  to  the  objects 
traded  -  apart  from  the  fish  off  the  Grand  Banks  of  Newfoundland  and 
the  crops  indigenous  to  North  America  such  as  tobacco,  potatoes, 
tomatoes,  etc  -  it  was  not  their  exotic  novelty  but  rather  their  quantity 
which  gave  a  special  significance  to  the  age  of  discoveries.  Again  this 
was  to  be  most  easily  seen  with  regard  to  first  gold,  and  then  silver, 
where  the  quantities  previously  available  either  locally  in  Europe  or 
imported  by  the  mainly  overland  routes  from  Africa  and  the  Near  and 
Far  East,  had  become  woefully  inadequate  in  the  face  of  rising  demand, 
but  were  now  to  be  vastly  supplemented  by  capture  from  the  Aztecs  and 
Incas  and  by  new  mining  methods  applied  to  the  rich  mines  of  the  New 

The  novelty  of  the  Renaissance  has  been  very  much  called  into 
question  by  historians  of  the  mid-twentieth  century.  It  was  no  doubt  a 
brilliant  exaggeration  to  call  the  Renaissance  'the  discovery  of  the 
world  and  of  man'.  Nevertheless,  a  new  dimension  in  the  trade  of  ideas 
accompanied,  reflected  and  partially  accounted  for  the  new 
geographical  discoveries.  It  may  well  be  true  that  traditionalists  laid 
excessive  emphasis  on  the  rise  of  the  Ottoman  empire  and  the  capture 
of  Constantinople  in  1453  as  causes  of  the  dispersion  of  Greek  scholars 
to  the  West  and  consequently  of  the  rebirth  of  classical  scholarship.  But 
whatever  the  exact  chronology,  the  resultant  'contraction  of  Europe'  in 
the  Near  East  was  a  vital  factor  in  the  expansion  of  Europe  in  the  Far 



East  and  in  the  new  West,  while  the  disruption  of  the  ancient  trade 
routes  at  the  very  time  when  demand  for  eastern  luxuries  was  rising 
increased  the  relative  scarcity  of  such  goods  and  therefore  the  potential 
profitability  of  discovering  sea  routes  to  the  East. 

Production  for  a  larger  market,  production  involving  new  modes  of 
transport  over  much  wider  distances  and  requiring  much  more  time 
between  its  initial  stages  and  acceptance  by  the  final  customer  -  all 
these  factors  had  deep  monetary  and  financial  implications,  including 
significant  improvements  of  the  embryo  capital,  money  and  foreign 
exchange  markets.  For  each  stage  in  the  chain  of  production,  and  for 
each  link  in  the  chain,  more  finance  was  needed  and  in  a  form  which 
would  minimize  the  greater  risks  involved.  Greater  reliance  on 
expanding  amounts  of  gold  and  silver  for  wholesale  trade  was  not 
enough.  Supporting  developments  were  also  needed,  including  wider 
use  of  quasi-monetary  instruments  such  as  bills  of  exchange  and 
extended  reckoning  for  credit  purposes  in  additional  moneys  of 
account.  The  pooling  of  resources  was  another  essential  method  of 
reducing  the  novel  risks  associated  with  overseas  trade  to  dangerous 
and  far-away  destinations,  with  the  result  that  new  experimental  forms 
of  equity  capital  were  developed  from  which  the  basic  structure  of 
modern  capitalism,  the  joint-stock  company,  eventually  evolved. 

Printing:  a  new  alternative  to  minting 

The  three  inventions  which  together  provided  the  springboard  for  the 
new  era,  namely  the  mariner's  compass,  gunpowder  and  printing,  all 
had  Chinese  antecedents,  though  printing  may  have  been  independently 
invented  in  Europe,  especially  in  the  form  of  movable  metal  types 
locked  in  a  printing  press.  Modern  runaway  inflation  is  often  literally 
seen  as  being  due  to  resorting  to  the  printing  press,  with,  for  example, 
all  the  German  banknote  presses  of  1923  pressed  into  24-hour  service  to 
provide  the  flood  of  notes  in  which  the  Weimar  Republic  was  eventually 
drowned.  It  is  one  of  the  gentler  ironies  of  history  that  German 
banking,  minting  and  printing  had  very  much  closer  causal 
contemporary  connections  than  are  generally  supposed.  Indeed  the 
development  of  money  as  we  know  it  would  have  been  impossible 
without  the  printing  press,  while  from  the  earliest  days  of  printing, 
governments  have  fallen  to  the  easy  temptations  of  the  press.  China  led 
the  way  in  this  as  in  so  many  others.  Although  China  had  produced 
block -printed  books  before  AD  800,  the  modern  press  was  invented  by 
Johann  Gutenberg  in  Mainz  in  about  1440,  where  he  produced  the 
world's  first  movable-type  printed  book  in  1456.  To  finance  his 



experiments  he  had  borrowed  1,600  guilders  from  Johann  Fust,  a  local 
banker,  between  1450  and  1452.  Inventors  are  not  usually  much  good  at 
running  their  affairs  profitably.  Gutenberg  was  no  exception,  while 
Fust,  in  contrast,  was  particularly  hard-headed  and  hard-hearted.  So 
aggressively  impatient  did  Fust  become,  not  only  to  see  a  positive  return 
on  his  promising  investment  but  also  to  seize  the  lion's  share  of  any 
profits,  that  in  1455  he  sued  Gutenberg  for  repayment  of  capital  and 
interest  amounting  to  2,026  guilders.  When  judgement  was  given  in 
Fust's  favour  he  foreclosed  on  his  loan  and  installed  his  future  son-in- 
law,  Peter  Schoeffer,  to  run  the  business  instead  of  Gutenberg.  Thus  it 
came  about  that  the  world's  first  printed  book  to  contain  the  date  and 
place  of  publication,  14  August  1457  at  Mainz,  and  the  first  to  use  more 
than  one  colour,  the  Great  Psalter  of  1457,  was  published  by  Fust  the 
banker  and  his  junior  partner,  Schoeffer.  Thereafter  the  business  never 
looked  back,  for  if  ever  there  was  an  invention  whose  time  had  come, 
this  was  it.  By  the  year  1500  there  were  presses  of  the  Gutenberg  type  in 
more  than  sixty  German  towns  and  in  every  major  country  of  Europe 
except  Russia.  During  the  course  of  the  fifteenth  century  more  than 
1,700  of  the  new  printing  presses  were  in  operation  and,  including  over 
100  books  of  English  literature  printed  by  William  Caxton  in 
Westminster,  between  fifteen  and  twenty  million  copies  of  books  had 
been  printed. 

An  explanation  of  the  rapidity  of  the  spread  of  the  new  printing 
presses  is  to  be  found  not  only  in  the  obviously  huge  pent-up  demand, 
hungry  for  books  of  all  kinds,  but  also  in  the  fact,  less  obvious,  but 
equally  important  economically,  that  the  supply  of  the  new  presses  was 
easily  made  available  because  traditional  olive  oil  and  wine  presses  had 
long  been  familiar  in  the  very  regions  —  southern  Germany,  northern 
Italy  and  much  of  France  -  closely  surrounding  the  birthplace  of  the 
new  invention.  The  outer  framework  and  much  of  the  basic  structure  of 
the  printing  press  could  thus  readily  be  adapted  from  existing  designs 
for  oil  and  wine  presses.  Thus  the  huge  potential  demand  was  quickly 
and  effectively  answered  with  an  elastic  supply.  For  the  same  reasons 
competition  among  rival  suppliers  caused  Europe  to  have  a  network  of 
this  vastly  improved  new  'internal'  means  of  communication  to  com- 
plement the  external  geographical  discoveries. 

In  due  course  the  printing  press  designs  became  modified  so  as  to 
lead  to  a  significant  improvement  in  the  minting  of  coinage,  a  process  in 
which,  as  mentioned  briefly  already,  Leonardo  da  Vinci  (1452—1519), 
that  most  brilliant  all-rounder  of  the  Renaissance,  was  himself  actively 
involved.  He  was  known  to  be  a  friend  of  Luca  Pacioli,  a  mathematician 
and  accountant,  with  whom  he  shared  an  interest  in  the  new  printing 



machines.  Leonardo's  mechanical  drawings,  held  by  many  to 
demonstrate  his  original  genius  at  its  best,  include  detailed  working 
designs  for  mechanical  minting  in  the  form  of  a  press  to  produce  both 
faster  and  more  uniform  coins.  Faster  production  methods  were 
urgently  needed  to  cope  with  coining  a  high  proportion  of  the  increased 
output  of  the  precious  metals,  already  becoming  available  from  new 
mines  close  at  hand  in  the  Tyrol  and,  later,  by  the  flood  of  imports  as  a 
result  of  the  geographical  discoveries  of  the  treasures  of  the  New  World. 
Leonardo's  achievements  in  supporting  improvements  both  in  printing 
and  in  minting  are,  belatedly,  given  full  recognition  by  A.  P.  Usher  in  his 
History  of  Mechanical  Inventions  (1962,  212-39).  Sir  John  Craig  (1953, 
117)  in  contrast  dismisses  Leonardo  in  a  line  and  a  half. 

Usher  reproduces  the  working  sketches  and  the  detailed  notes  of 
Leonardo's  printing  press,  and  goes  on  to  show  how  'the  utilisation  of 
machinery  to  attain  precision  is  further  and  perhaps  more  notably 
illustrated  by  Leonardo's  projects  for  the  improvement  of  the  process  of 
coinage'.  He  made  provision  for  a  water-driven  mill  driving  seven 
hammers  from  a  single  shaft,  a  widely  adopted  innovation,  so  that  the 
new  money  came  to  be  called  milled  money. 

Although  the  introduction  of  the  modern  technique  of  coinage  was  long 
attributed  to  the  goldsmiths  and  coiners  of  Augsburg  and  Nuremberg,  it  is 
now  held  that  the  beginnings  of  the  new  processes  are  to  be  found  in  Italy. 
We  know  that  Leonardo  was  occupied  at  the  Papal  mint,  though  there  is  no 
record  of  any  coins  being  struck  under  his  supervision  .  .  .  His  work  was 
that  of  the  forerunner  -  the  work  of  conception.  (Usher  1962) 

In  Europe,  however,  the  knowledge  that  printing  money  could  be  a 
direct  substitute  for  coining  it  took  nearly  two  centuries  to  discover,  and 
it  was  a  further  century  before  the  abuse  of  the  printing  press  was  to 
lead  to  an  inflationary  flood  of  banknotes.  It  is  appropriately  to  China, 
where  paper,  printing  and  the  banknote  were  first  invented,  that  we 
must  turn  for  the  world's  first  demonstration  of  banknote  inflation.  As 
a  result  the  Chinese  people  lost  all  faith  in  paper  money  and  became 
more  than  ever  convinced  of  the  virtues  of  silver,  a  conviction  which 
lasted  right  up  to  the  early  part  of  the  twentieth  century.  Because 
Europe  in  the  fifteenth  and  sixteenth  centuries  had  no  real  experience  of 
banknotes,  such  an  inflationary  medium  was  not  then  possible.  Instead 
its  rulers  debased  the  only  acceptable  and  trusted  form  of  money, 
namely  coinage.  Only  when  people  have  built  up  faith  and  confidence 
in  a  monetary  medium  is  it  possible  for  the  authorities  to  take 
advantage  of  that  faith.  In  China,  paper  money  had  enjoyed  a  long  and 
trusted  history  before  that  trust  was  -  or  could  be  -  destroyed.  In 



Europe  a  shortage  of  bullion  led  first  to  a  new  wave  of  metallic 
debasement,  which  in  turn  eventually  led  the  monetary  authorities  back 
to  the  issuing  of  full-bodied,  intrinsically  sound  coinage.  It  is,  however, 
a  further  irony  of  monetary  history  that,  not  long  after  China  finally 
abandoned  its  paper  currency,  European  banks  began  increasingly  to 
issue  paper  money  notes  about  which  they  had  first  learned  from  the 
writings  of  travellers  like  Marco  Polo,  now  suddenly  widely  becoming 
available  in  printed  versions.  Thus  printing  enabled  Europeans  to  enjoy 
a  renaissance  not  only  of  ancient  classical  civilizations  but  also  of 
certain  aspects  of  modern  Chinese  civilization,  though  without  heeding 
the  Chinese  example  of  the  dangers  of  paper-based  hyper-inflation. 

The  rise  and  fall  of  the  world's  first  paper  money 

Whereas  in  our  account  of  the  origins  of  proper  coinage  we  had  to  cast 
doubt  on  Chinese  claims  to  precedence,  there  is  no  gainsaying  the  facts 
of  Chinese  leadership  in  the  systematic  issue  of  banknotes  and  paper 
money.  A  short-lived  issue  of  Chinese  leather-money,  consisting  of 
pieces  of  white  deerskin  of  about  one  foot  square,  with  coloured 
borders,  each  representing  a  high  value  of  40,000  cash,  dates  from  as 
early  as  118  BC.  There  ensues  a  very  considerable  gap  of  900  years  before 
we  hear  of  the  next  significant  reference,  this  time  to  paper  banknotes 
of  a  more  modern  type,  in  the  reign  of  Hien  Tsung  (806-21).  It  appears 
that  a  severe  shortage  of  copper  for  coinage  caused  the  emperor  to 
invent  this  new  form  of  money  as  a  temporary  substitute  for  the  more 
traditional  kind.  Another  experimental  state  issue  appeared  around  910 
and  more  regularly  from  about  960  onwards.  By  about  1020  the  total 
issue  of  notes  had  become  so  excessive,  amounting  in  total  to  a  nominal 
equivalent  of  2,830,000  ounces  of  silver,  that  vast  amounts  of  cash  were 
exported,  partly  as  a  form  of  'Danegeld'  to  buy  off  potential  invaders 
from  the  north,  and  partly  to  maintain  China's  very  considerable 
customary  imports,  leading  to  a  cash  famine  within  China.  The 
authorities  attempted  to  replace  the  drain  of  cash  by  even  greater 
increases  in  note  issues,  thus  giving  further  sharp  twists  to  the 
inflationary  spiral.  A  perfumed  mixture  of  silk  and  paper  was  even 
resorted  to,  to  give  the  money  wider  appeal,  but  to  no  avail;  inflation 
and  depreciation  followed  to  an  extent  rivalling  conditions  in  Germany 
and  Russia  after  the  First  World  War'  (Goodrich  1957,  152). 

From  time  to  time  private  note-issuing  houses  flourished,  increasing 
the  inflationary  pressures  and  helping  to  devalue  the  official  issues.  By 
1032  there  were  some  sixteen  such  private  houses,  but  the  bankruptcy 
of  some  of  these  led  the  authorities  to  proscribe  them  all  and  replace  the 



private  notes  with  an  increase  in  the  official  issue,  with  note-issuing 
branches  in  each  province.  As  the  old  issues  became  almost  worthless, 
so  they  were  replaced  with  new  issues  until  the  total  outstanding  issues 
of  these  too  became  excessive.  Thus,  for  instance,  though  a  reformed 
new  paper  note  was  issued  by  Emperor  Kao  Tsung  in  1160,  by  1166  the 
total  official  issues  had  swollen  to  the  enormous  nominal  value  of 
43,600,000  ounces  of  silver.  'There  were  local  notes  besides,  so  that  the 
empire  was  flooded  with  paper,  rapidly  depreciating  in  value'  (Yule 
1967,  149).  A  series  of  inflations  thus  became  interspersed  with 
reformed  and  drastically  reduced  issues  of  paper,  with  the  reforms 
effective  only  so  long  as  the  note  issues  were  strictly  limited. 

With  the  rise  of  the  Mongol  empire,  China  became  part  of  a  vast 
dominion  extending  from  Korea  to  the  Danube.  'To  standardize  the 
currency  throughout  Asia,  the  Mongols  adopted  the  paper  money  of 
China',  and  so  repeated  its  financial  history  on  an  even  grander  scale 
(Goodrich  1957,  174).  The  Mongols'  first  note  issues,  of  moderate  size 
only,  date  from  1236;  but  by  the  time  of  the  first  issues  of  Kublai  Khan 
in  1260  the  note  circulation  had  again  become  substantial.  It  was 
Kublai's  note  issues  which  were  eventually  brought  to  the  attention  of 
the  western  world  by  Marco  Polo,  who  lived  in  China  from  1275  to 
1292.  His  tales  of  paper  money  were  at  first  met  with  disbelief. 
However,  in  view  of  its  subsequent  importance,  a  brief  reference  to  his 
account  is  relevant  here.  In  Chapter  XVIII  of  his  famous  Travels, 
entitled  'Of  the  Kind  of  Paper  Money  issued  by  the  Grand  Khan  and 
Made  to  Pass  Current  throughout  his  Dominions',  Marco  Polo  gives  the 
following  description. 

In  this  city  of  Kanbalu  is  the  mint  of  the  grand  khan,  who  may  truly  be  said 
to  possess  the  secret  of  the  alchemists,  as  he  has  the  art  of  producing  paper 
money  .  .  .  When  ready  for  use,  he  has  it  cut  into  pieces  of  money  of 
different  sizes  .  .  .  The  coinage  of  this  paper  money  is  authenticated  with  as 
much  form  and  ceremony  as  if  it  were  actually  of  pure  gold  or  silver  .  .  .  and 
the  act  of  counterfeiting  it  is  punished  as  a  capital  offence.  When  thus 
coined  in  large  quantities,  this  paper  currency  is  circulated  in  every  part  of 
the  grand  Khan's  dominions;  nor  dares  any  person,  at  the  peril  of  his  life, 
refuse  to  accept  it  in  payment.  All  his  subjects  receive  it  without  hesitation, 
because,  wherever  their  business  may  call  them,  they  can  dispose  of  it  again 
in  the  purchase  of  merchandise  they  may  have  occasion  for;  such  as  pearls, 
jewels,  gold  or  silver.  With  it,  in  short,  every  article  may  be  procured.  When 
any  persons  happen  to  be  possessed  of  paper  money  which  from  long  use 
has  become  damaged,  they  carry  it  to  the  mint,  where,  upon  the  payment  of 
only  three  per  cent,  they  may  receive  fresh  notes  in  exchange.  Should  any  be 
desirous  of  procuring  gold  or  silver  for  the  purposes  of  manufacture,  such 
as  drinking  cups,  girdles  or  other  articles  wrought  of  these  metals,  they  in 
like  manner  apply  at  the  mint,  and  for  their  paper  obtain  the  bullion  they 



require.  All  his  majesty's  armies  are  paid  with  this  currency,  which  is  to 
them  of  the  same  value  as  if  it  were  gold  or  silver.  Upon  these  grounds,  it 
may  certainly  be  affirmed  that  the  grand  khan  has  a  more  extensive 
command  of  treasure  than  any  other  sovereign  in  the  universe.  (Dent  1908, 

Even  the  Mongols  failed,  however,  to  spread  the  note-accepting  habit 
to  the  citizens  of  the  satellite  states  around  the  perimeter  of  their  power, 
although  short-lived  imitative  systems  were  developed  in  parts  of  India 
and  Japan  between  1319  and  1331.  By  far  the  most  celebrated 
experiment,  which  brought  knowledge  of  the  Chinese  system  much 
closer  to  the  West,  was  that  in  the  kingdom  of  Persia  in  1294.  The 
depletion  of  the  Persian  king's  treasury,  as  a  result  of  the  decimation  of 
Kazakh's  herds  of  sheep  and  cattle  following  an  unusually  severe  winter, 
caused  him  to  attempt  to  replenish  his  revenues  by  issuing  'chao'  or 
paper  money  as  in  China.  'On  13th  August  1294  a  proclamation 
imposed  the  death  penalty  on  all  who  refused  to  accept  the  new 
currency.  Considerable  quantities  of  Ch'ao  were  then  prepared  and  put 
into  circulation  on  12th  September'  (J.  A.  Boyle  1968,  V,  375).  However 
the  experiment,  which  lasted  barely  two  months  and  was  confined  to 
the  city  of  Tabriz,  turned  out  to  be  a  complete  disaster,  with  the  bazaars 
deserted  and  trade  at  a  standstill.  According  to  Professor  Boyle, 
perhaps  the  most  noteworthy  aspect  of  this  short-lived  experiment  is 
that  it  was  the  first  recorded  instance  of  block  printing  outside  China.  It 
is  likely  that  the  West  first  'learned  about  printing  from  the  commonly 
used  paper  money  that  was  printed  not  only  in  Peking  but  also  in 
Tabriz'  (Goodrich  1957,  179).  The  first  clear  description  of  printing 
available  to  western  scholars  appears  in  a  'History  of  the  World'  written 
by  Rashid  al  Din,  a  physician  and  prime  minister  of  Persia  around  this 
period.  His  work,  which  became  well  known  in  European  libraries  also 
'contains  much  information  on  China,  especially  on  the  use  of  paper- 
money'  (Needham  1970,  17). 

Rashid  al  Din's  accounts  were  contemporary  with,  and  so  reinforced, 
those  of  Marco  Polo.  Together  they  helped  to  shorten  the  learning  curve 
by  which  the  West  belatedly  availed  itself  of  Chinese  experience.  Thus 
the  world's  first  hyper-inflation  to  be  based  on  paper  banknotes,  took 
place  nearly  1,000  years  ago,  while  the  first  Chinese  books  on  coinage 
and  numismatics  and  on  the  dangers  of  paper  money,  preceded  those  in 
the  West  by  some  400-500  years.  In  1149  Hung  Tsun  published  the 
Chhuan  Chih  or  a  Treatise  on  Coinage,  'the  first  independent  work  on 
numismatics  in  any  language  .  .  .  For  European  numismatics  we  have  to 
await  the  late  sixteenth  century'  (Needham  1971,  II,  394).  According  to 
Sir  Henry  Yule's  'Collection  of  Medieval  Notices  on  China',  'the 



remarks  of  Ma  Twan-lin,  a  medieval  Chinese  historian  are  curiously 
like  a  bit  of  modern  controversy,'  which  he  demonstrates  by  quoting 
Twan-lin:  'Paper  should  never  be  money  (but)  only  employed  as  a 
representative  sign  of  value  existing  in  metals  or  produce  ...  At  first 
this  was  the  mode  in  which  paper  currency  was  actually  used  among 
merchants.  The  government,  borrowing  the  invention  from  private 
individuals,  wished  to  make  a  real  money  of  paper,  and  thus  the 
original  contrivance  was  perverted'  (Yule  1967,  150).  In  this  way  China 
experienced  well  over  500  years  of  paper  currencies,  from  early  in  the 
ninth  until  the  middle  of  the  fifteenth  century.  By  1448  the  Ming  note, 
nominally  worth  1,000  cash,  was  in  real  market  terms  worth  only  three, 
while  after  1455  there  appears  to  be  no  more  mention  of  the  existence  of 
paper  money  circulating  in  China  (Yang  1952).  This  was  still  some  years 
before  the  concept  was  to  enjoy  a  successful  renaissance  in  the  West, 
and  nearly  three  centuries  before  printed  banknotes  became  at  all 
common.  The  West  was  eagerly  ready  for  printing,  where  the  small 
number  of  different  type  characters  required  for  alphabets  of  only 
around  two  dozen  letters  provided  an  enormous  advantage  in  ease  of 
mechanization  compared  with  the  many  hundreds  required  for  Chinese 
characters.  But  the  West  was  not  yet  ready  for  printed  banknotes. 
Instead  the  printing  machine  was  modified,  as  we  have  seen,  for  minting 
coins.  Thus  the  minting  press  and  the  printing  press  shared  a  common 
parentage,  occurring  about  the  same  time,  developed  in  their  earlier 
stages  by  the  same  inventors,  sponsored  by  the  same  merchants  and 
princes,  and  together  playing  a  significant  part  in  helping  to  bring 
about  a  common  revolution  in  finance,  trade  and  communications. 

Bullion 's  dearth  and  plenty 

It  is  the  important  conclusion  of  Dr  Challis,  in  his  expert  study  of 
Tudor  coinage,  and  confirmed  by  the  complementary  work  of  Professor 
Gould,  that  'In  respect  of  the  coinage,  as  in  so  many  other  fields, 
England  was  integral  with  Europe',  so  that  she  shared  in  the  general 
shortage  of  bullion  in  the  first  half  of  the  sixteenth  century,  even  to  the 
extent  of  adopting  the  sinful  continental  habit  of  debasement,  and 
similarly  experienced  the  mixed  blessings  of  the  influx  of  bullion  from 
the  New  World  during  the  second  half  of  the  century  (Challis  1978, 
300).  Since  Britain's  economic  and  financial  development  was  thus  so 
closely  connected  with  those  wider  economic  and  political  forces 
influencing  Europe  and  beyond,  we  shall  first  look  at  those  aspects 
influencing  the  flows  of  bullion  into  western  Europe  before  examining 
their  impact  on  the  financial  history  of  the  Tudors  and  early  Stuarts. 



The  preoccupation  of  Europeans  with  the  precious  metals  was  long 
criticized  by  nineteenth-  and  early  twentieth-century  writers  as  a 
glaring  example  of  the  obvious  follies  of  mercantilist  doctrine.  In  truth, 
however,  there  was  a  very  considerable  degree  of  justification  for  the 
emphasis  upon  gold  and  silver  in  the  sixteenth  and  seventeenth 
centuries,  and  for  according  bullion  a  very  high  priority  as  an  incentive 
in  the  search  for  new  avenues  of  trade.  Quite  apart  from  the  importance 
of  bullion  as  'the  sinews  of  war'  (a  feature  to  be  examined  more  fully 
later),  there  were  a  number  of  excellent  reasons  for  seeking  gold  and 
silver,  the  old,  tried  and  tested  commodities,  in  preference  to  many  of 
the  more  exotic  commodities  that  they  were  discovering,  but  which  had 
a  far  more  limited,  experimental  and  riskier  market  than  did  the 
precious  metals.  Second  among  these  advantages  was  their  high  value- 
to-weight  ratios,  all  the  more  important  given  the  vast  distances  now 
being  regularly  travelled  for  the  first  time  in  history.  Although  some  of 
the  new  commodities,  especially  the  spices  required  to  make  the  salted 
meat  of  Europe  palatable,  also  had,  from  time  to  time,  exceptionally 
high  value-to-weight  ratios,  these  occasions  were  sporadic,  hardly  ever 
general  or  universal.  In  particular,  spices  could  not  long  command  high 
scarcity  prices,  except  initially  in  Europe;  and  even  here  the  natural 
scarcities,  intensified  by  artificial  'corners',  were  in  due  course 
interspersed  by  long  unprofitable  periods  of  'glut'.  In  other  words  there 
was  a  limited  market  in  spices  compared  with  an  almost  unlimited 
market  for  the  precious  metals.  A  few  bags  of  pepper  unloaded  in 
Amsterdam  or  London  could  quickly  depress  its  price  far  more  than 
many  tons  of  silver  could  depress  the  price  of  silver. 

The  exotic  products  of  the  East  typically  enjoyed  a  limited,  inelastic 
demand  in  Europe,  coupled  with  a  long-term  elasticity  of  supply  in  and 
from  the  new  lands.  Three  examples  of  the  resultant  volatility  of  prices 
(highlighting  the  steadier  high  values  of  the  precious  metals)  must 
suffice.  As  early  as  1496  the  importation  of  the  new  Madeira  sugar 
caused  a  serious  slump  of  sugar  prices  in  Spain.  It  was  one  of  the 
innumerable  'corners'  in  pepper,  organized  by  the  Dutch  in  1599,  which 
was  the  immediate  cause  of  the  founding  of  the  London  East  India 
Company.  So  low  did  the  price  of  nutmeg  slump  in  Amsterdam  in  1760 
that  in  an  effort  to  raise  prices,  a  huge  quantity  of  mace  and  nutmegs 
was  burned  (Masefield  1967,  IV,  287-8).  On  a  few  exceptional 
occasions  pepper  was  indeed  preferred  to  the  precious  metals,  being  not 
only  more  than  worth  its  weight  in  gold  but  used  also  on  occasions  as  a 
unit  of  account.  However  these  were  precisely  those  occasions  when 
normal  gold  and  silver  money  was  so  scarce  that  resort  had  to  be  made 
to  barter,  to  wages  being  paid  in  kind  'and  to  ersatz  currencies  like 



pepper  on  the  busiest  markets'  of  northern  Italy  (Day  1978,  4).  Such 
crisis  conditions  quickly  disappeared  as  soon  as  adequate  supplies  of 
the  precious  metals  became  available  later.  Thus  in  contrast  to  the 
extreme  volatility  of  the  market  for  spices,  gold  and  silver  were  almost 
universally  acceptable  at  high,  though  not  inflexible,  value-to-weight 
ratios,  even  when  they  became  very  much  more  plentiful  as  a  result  of 
the  discoveries  of  new  mines  and  new  methods  of  mining. 

The  precious  metals,  especially  gold,  acted  not  only  as  a  major 
incentive  to  the  princes  and  merchants  who  sponsored  or  organized  the 
voyages  of  discovery,  but  also  and  much  more  directly  to  the  ships' 
crews,  from  their  captains  down  to  their  humblest  seamen.  Thus  Pierre 
Vilar,  in  his  History  of  Gold  and  Money  states  that  Columbus's  diary  of 
his  first  voyage  makes  mention  of  gold  at  least  sixty-five  times,  while  a 
prize  of  10,000  maravedis  promised  by  King  Ferdinand  and  Queen 
Isabella  to  the  expedition's  first  seaman  to  sight  land  in  the  New  World 
-  who  turned  out  to  be  Rodrigo  de  Triana  -  was  selfishly  claimed  by 
Columbus  himself  (Vilar  1976,  63).  More  normally,  however,  so 
interdependent  for  their  very  lives  were  all  members  of  the  crews  of  the 
small  ships  of  that  time,  that,  despite  the  iron  discipline  of  the  captains, 
some  not  inconsiderable  share  of  the  spoils  could  be  expected  by  each 
member.  It  should  not  be  forgotten,  as  Professor  Kenneth  Andrews 
graphically  reminds  us,  that  piracy  was  elevated  to  a  preferred  branch 
of  policy  by  Britain,  France  and  Holland  as  a  means  of  obtaining  a 
share  of  the  riches  of  the  New  World  claimed  exclusively  by  Spain  and 
Portugal.  There  were  thirteen  known  English  expeditions,  supple- 
mented by  an  unknown  number  of  other  piratical  missions,  to  the 
Caribbean  in  the  eight  years  1570-7.  From  many  of  these  all  those  crew 
members  lucky  enough  to  survive  returned  with  small  fortunes,  such  as 
Drake's  expedition  of  1573  (K.  R.  Andrews  1984,  119-31).  Thus,  quite 
apart  from  smuggling,  the  actual  flows  of  specie  exceeded  probably  to  a 
substantial  if  unknown  degree  the  total  of  the  statistics  compiled  from 
more  official  sources,  which  naturally  could  not  take  adequate 
cognizance  of  piracy,  plunder  and  illicit  trading. 

The  precious  metals  were  also  avidly  and  steadily  demanded  in  the 
East  which,  in  demonstrating  for  the  next  three  centuries  that  it  was  'the 
sink  of  the  precious  metals',  kept  their  values  higher  in  the  West  than 
they  would  otherwise  have  been.  One  of  the  main  reasons  for  this  was, 
of  course,  the  fact  that  many  of  the  products  which  the  Europeans 
produced  were  not  keenly  demanded  in  China  or  India,  whereas  their 
exotic  products,  on  the  contrary,  enjoyed  a  keen  and  growing  demand  in 
the  West.  The  lure  of  the  precious  metals  therefore  remained 
untarnished  in  the  eyes  of  European  merchants,  all  the  more  so  since 



they  provided  an  almost  unfailing  means  of  securing  the  luxuries  of  the 
East  in  exchange.  England's  famed  wool  and  woollen  cloth  exports, 
keenly  demanded  all  over  Europe,  were  naturally  scorned  in  the  warmer 
countries  of  the  East.  The  gap  in  the  balance  of  payments  could  most 
conveniently  be  filled  by  the  precious  metals,  especially  silver,  which 
generally  enjoyed  a  higher  ratio  to  gold  than  it  did  in  the  West.  In  this 
way  total  world  trade  was  lifted  to  a  far  higher  pitch  than  would 
otherwise  have  been  possible,  precisely  because  of  this  almost  universal 
but  varying  preference  for  gold  and  silver.  Consequently,  fluctuations  in 
the  flow  of  specie  relative  to  changing  demands  had  a  most  pervasive 
and  long-lasting  effect  on  general  economic  development,  as  well  as  on 
money  and  prices  both  in  the  East  and  in  Europe. 

The  'Great  Bullion  Famine'  of  the  fourteenth  and  fifteenth  centuries 
was  all  the  more  keenly  felt  because  of  the  still  rather  elementary  state 
of  European  banking  even  in  the  most  advanced  centres  of  northern 
Italy  and  southern  Germany.  Over  most  of  Europe  trade  depended 
fundamentally  on  adequate  supplies  of  ingots  and  coinage,  so  much  so 
that  economic  progress  was  held  back  by  a  persistent  tendency  for 
supplies  to  lag  behind  demand.  'Europe's  indispensable  but  inadequate 
stock  of  bullion  and  coin,  besides  being  subject  to  irretrievable  loss  in 
the  process  of  coinage  and  recoinage  and  through  "fair  wear  and  tear", 
fire,  shipwreck  and  forgotten  hoards,  was  constantly  being  eroded  by 
the  large-scale  export  of  gold  and  silver  in  all  forms  to  the  Levant'  (Day 
1978,  5).  As  already  indicated,  the  return  of  barter,  the  introduction  of 
fiat  moneys  of  account  and  also  the  general  decline  in  prices  were  all 
expressive  results  of  the  long-term  bullion  famine. 

Portuguese  probing  along  the  African  coast  from  the  1450s  onward 
provided  a  new  route  for  sub-Saharan  gold  channelled  principally  via 
Ghana  and  Mali.  The  increased  supplies  of  gold  then  gradually  raised 
the  relative  value  of  silver  in  Europe  and  increased  the  viability  of 
European  silver  mines.  This  process,  once  begun,  was  intensified  by  the 
new  supplies  of  gold  reaching  Europe  from  the  West  Indies  during  what 
has  been  called  the  Caribbean  'gold  cycle'  of  1494-1525.  Briefly  this 
consisted  of  first  depriving  the  native  Indians  of  their  gold  possessions; 
they  did  not  use  gold  for  money  but  mainly  just  for  ornament.  Then  the 
natives  were  forced  to  work  long  hours  in  arduous  conditions  to  pan  for 
alluvial  gold.  Within  a  generation  or  less,  disease  and  overwork 
practically  wiped  out  the  original  Indian  population  of  the  initial  gold- 
producing  regions,  and  the  first  gold  cycle  was  completed  (Vilar  1976, 
66-7).  'Out  of  all  this  emerged  the  profits  of  merchant  financiers  such 
as  the  Fuggers  and  Welsers  of  Augsburg'  (Spooner  1968,  24). 

Thus  silver  mining,  minting  and  banking  grew  together  in  a  notable 



example  of  profitable  vertical  integration.  By  the  middle  of  the  sixteenth 
century,  however,  a  veritable  flood  of  silver  from  Potosi  brought  about  a 
sharp  decline  in  the  mine-owners'  monopolistic  mining  profits,  although 
by  then  they  were  successfully  diversifying  still  further  into  a  wide  range 
of  financial  and  industrial  activities.  Most  of  the  German  mines  were 
closed  down,  leading  to  a  wide  dispersion  of  many  of  their  skilled 
workers  to  such  up-and-coming  places  as  Almaden  in  Spain,  Keswick  in 
Britain  and  Potosi  in  'Peru'.  These  were  among  the  first  of  what  were  to 
be  the  much  more  powerful  and  widespread  effects  of  the  lure  of  the  gold 
and  silver  of  the  New  World  on  production,  employment,  migration  and 
prices  during  the  mid-sixteenth  to  the  mid-seventeenth  centuries. 

Potosi  and  the  silver  flood 

In  the  first  half  of  the  sixteenth  century  up  to  about  1560  the  relative 
increase  in  gold  exceeded  that  of  silver;  in  the  second  half  that  situation 
was  dramatically  reversed,  again  with  far-reaching  effects  on  world 
trade  and  money.  Until  1560  gold  imports  to  Spain  represented  more 
than  half  the  value  (but  less  than  one-twentieth  the  weight)  of  silver. 
Before  concentrating  our  attention  on  the  vast  increase  in  silver  from 
Mexico,  Venezuela  and  'Peru'  (then  a  vast  area  which  included  Potosi, 
now  in  Bolivia)  it  is  useful  to  recall  the  main  features  in  the  exploitation 
and  exportation  of  gold  from  the  New  World.  After  the  Caribbean 
sources  had  been  exhausted,  the  next  substantial  amounts  of  gold  came 
into  Spanish-held  territories  on  the  mainland,  with  the  period  from 
about  1500  to  1530  being  dubbed  by  Vilar  as  almost  exclusively  the  age 
of  gold,  with  silver  production  in  those  areas  then  being  negligible. 
When  from  1530  to  1560  silver  production  began  to  rise  again  its  value 
was  eclipsed  by  the  sudden  and  huge  increase  in  gold  supplies  following 
Pizarro's  conquest  of  the  Incas  during  his  famous  expeditions  of 
1531-41.  Hamilton  has  calculated  that,  according  to  detailed  records  of 
gold  production  kept  by  the  'House  of  Commerce'  in  Seville,  something 
between  1,000  and  1,500  kg  of  gold  came  into  Spain  from  the  New 
World  each  year  on  average  between  the  years  1500  and  1540  (E.  J. 
Hamilton  1934,  42).  This  was  soon  to  be  swamped  by  an  upsurge  of 
silver  output  from  Mexico  and  Peru  amounting  to  something  around 
300  tons  per  annum  in  the  best  years. 

The  Potosi  deposits  were  discovered  by  Diego  Gualpa  in  1545  in  a 
'silver  mountain'  of  six  miles  around  its  base  on  a  remote  and  desolate 
plateau,  12,000  feet  above  sea  level.  From  being  virtually  uninhabited, 
for  it  was  a  most  forbidding  location,  the  population,  entirely  of 
immigrants,  rose  rapidly  to  45,000  by  1555,  and  to  a  peak  of  160,000  in 



1610.  The  full  exploitation  of  its  resources  depended  on  two  factors: 
first  the  organization  of  a  system  of  forced  labour,  and  secondly  the 
application  of  the  newly  discovered  mercury  process  to  enable  cheaper, 
faster  and  fuller  extraction  of  silver  from  its  ores.  The  mines  were  so 
remote  that,  even  more  than  in  most  mining  areas,  prices  of  everyday 
products  were  prohibitively  expensive.  Thus,  despite  the  nominally  high 
wages  paid,  insufficient  free  labour  was  attracted  to  enable  full 
exploitation.  Consequently  the  voluntary  labour  was  supplemented  by 
a  conscript  labour  force,  the  'mita'  system,  whereby  all  Indian  villages 
within  a  certain  radius  of  the  mines  were  allocated  a  quota  of  their 
population  to  be  sent  to  the  mines.  The  mercury  amalgam  process  of 
silver  extraction  was  introduced  first  to  the  Mexican  silver  mines  of 
Guanajuato  and  Zacatecas,  with  the  mercury  imported  all  the  way 
from  Almaden  in  Spain.  However,  in  1563  very  productive  mercury 
deposits  were  discovered  at  Huancavelica,  situated  between  Potosi  and 
the  port  of  Lima,  capital  of  Peru.  Although  it  still  took  some  two 
months  for  the  trains  of  llamas  to  reach  Potosi,  this  was  still  a  far  easier 
and  more  reliable  journey  than  the  long  route  from  Almaden. 
Huancavelica  supplied  between  a  half  and  two-thirds  of  all  the  mercury 
used  in  the  Americas,  in  the  100  years  following  its  discovery,  the  other 
one-third  or  so  still  coming  from  Almaden.  Without  this  mercury,  the 
life  of  the  American  silver  mines  would  have  become  very  limited,  not 
only  because  of  the  high  costs  of  importing  mercury  from  Spain  but 
also  because  it  would  not  have  been  worthwhile  making  use  of  the  vast 
quantities  of  low-percentage  silver  ores  once  the  richer  seams,  naturally 
chosen  first  wherever  possible,  had  become  exhausted.1 

The  outpouring  of  silver  to  Europe  produced  a  flood  of  pamphlets, 
articles  and  books  in  attempts  to  analyse  its  results,  particularly  with 
regard  to  responsibility  for  the  long-term  inflation  in  Europe  in  the 
sixteenth  and  first  half  of  the  seventeenth  centuries.  Most  accounts 
concern  themselves  rather  too  exclusively  with  the  influence  of  the 
precious  metals  on  European  economies,  and  tend  to  underestimate  or 
ignore  their  effects  on  the  economic  fate  of  the  Far  East,  except  to  the 
extent  that  the  precious  metals  were  re-exported  from  Europe. 
However,  quite  apart  from  the  indirect  drain  to  the  Far  East  to 
compensate  for  Europe's  chronic  balance  of  payment  deficits,  the  New 
World  also  exported  its  silver  directly  to  the  East  in  specially  authorized 
ships  for  many  decades.  This  direct  export  at  its  peak  exceeded  the 
indirect  leakages  which  have  captured  the  academic  headlines. 

1  John  Hemming  (1993,  p.  59)  reminds  us  that  the  humble  potato,  which  originated  in 
Peru,  now  produces  annually  a  world  harvest  worth  many  times  the  value  of  all  the 
precious  metals  taken  from  the  Inca  empire  by  its  conquerors. 



Dr  Atwell  of  the  London  School  of  Oriental  Studies  has  amply 
demonstrated  that  the  import  of  New  World  silver  into  China  'played 
an  important  part  in  the  pace  of  China's  economic  development .  .  .  but 
ultimately  proved  to  be  a  mixed  blessing  and  did  much  to  undermine 
the  economic  and  political  stability  of  the  Ming  Empire  (1368-1644) 
during  the  last  few  decades  of  that  dynasty's  existence'  (Atwell  1982, 
68).  There  were  several  routes  by  which  Peruvian  and  Mexican  silver 
reached  the  Far  East,  of  which  the  most  important  were  the  direct 
sailings  from  Acapulco  to  Manila  and  thence  to  China.  In  the  peak  year 
of  1597  some  345,000  kg  of  silver  were  shipped  by  this  route.  In 
addition,  silver  in  considerable  amounts  arrived  in  China  via  Buenos 
Aires,  Lisbon,  Seville,  Amsterdam,  London  and  from  Goa  and  other 
colonial  possessions  in  India,  some  legally,  other  shipments  illegally.  Dr 
Atwell  indicates  that  silver  from  Chinese  domestic  mines  during  much 
of  the  fifteenth  and  sixteenth  centuries  had  declined  so  much  that  the 
annual  total  was  exceeded  by  the  silver  carried  in  just  one  Spanish 
galleon  from  Acapulco  to  Manila.  With  a  population  of  100,000,000  the 
world's  most  advanced  economy  had  become  dangerously  dependent 
for  its  basic  monetary  supplies  on  New  World  silver.  For  as  long  as  this 
source  remained  plentiful,  Chinese  commercial  activity  prospered,  but 
eventually  'the  sharp  decline  in  bullion  imports  (from  about  1640)  had 
disastrous  consequences  for  the  late  Ming  economy.  Without  sufficient 
supplies  of  silver,  many  people  in  China  were  unable  to  pay  their  taxes, 
or  rents,  repay  loans,  or  in  some  cases  even  to  buy  food'  (Atwell  1982, 

Compared  with  its  effects  on  China,  at  first  stimulating  and  then 
debilitating,  western  Europe,  with  the  exception  of  Spain  (which 
changed  its  view  of  the  New  World  specie  from  being  God's  bounteous 
blessing  to  becoming  the  curse  of  the  devil)  escaped  lightly.  On  balance 
it  probably  gained  considerably,  despite  the  excessive  emphasis 
conventionally  placed  on  the  role  of  the  new  specie  in  the  price 
'revolution'  of  1540  to  1640,  to  be  examined  shortly.  However,  before 
looking  at  the  causes  and  consequences  of  this  overblown  inflation  in 
which  England,  like  the  rest  of  Europe,  was  closely  involved,  we  shall 
see  how  the  Tudors  and  early  Stuarts  coped  with  their  own  closely 
related  fiscal  and  monetary  problems  at  home. 

Henry  VII:  fiscal  strength  and  sound  money,  1485-1509 

Henry  VII's  first  task  was  to  reunite  the  country's  previously  warring 
factions  so  that  internal  peace  and  prosperity  could  again  flourish  after 
an  absence  of  almost  a  century.  Throughout  his  reign  he  showed  himself 



to  be  a  dedicated  master  of  administration,  keeping  above  all  an 
especially  firm  grip  on  the  purse  strings.  He  extracted  every  penny  of 
his  legal  dues,  employing  Morton  with  his  infamous  'fork'  and  the 
notoriously  keen  Dudley  and  Empson  for  this  purpose.  His  control  of 
spending  helped  to  swing  the  money  pendulum  towards  higher  quality. 
He  modified  the  usual  royal  administrative  and  judicial  machinery 
under  the  frightening  authority  of  the  Star  Chamber,  thus  combining 
personal  control  with  carefully  delegated  powers.  In  the  days  when  the 
fortunes  of  royalty  and  those  of  government  administration  were  still 
far  from  being  clearly  distinguishable  but  were  properly  considered  to 
overlap  to  a  considerable  degree,  the  wealth  of  the  monarch,  and 
especially  whether  it  happened  to  be  rising  or  falling,  was  highly 
relevant  to  fiscal,  financial  and,  indeed,  to  constitutional  history  in 
general.  Parliament  voted  Henry  his  customary  dues  for  life:  Henry 
insisted  with  unusual  efficiency  that  these  came  his  way.  To  Henry 
sound  money  was  essential  to  sound  government,  and  'no  previous 
English  King  had  ever  realised  so  fully  that  money  was  power'  (Pugh 

It  was  not  that  the  mint  in  normal  circumstances  contributed 
anything  more  than  a  marginal  amount  to  the  king's  finances.  As  Dr 
Challis  has  pointed  out,  Henry's  average  annual  net  return  from 
operating  his  mints  came  to  only  between  £100  and  £200,  a  trifle  when 
ordinary  revenue  was  around  £113,000  (1978,  248).  Nevertheless 
Henry's  same  characteristics  of  ruthless  penny-pinching  efficiency  were 
soon  applied  to  his  dealings  with  his  mints,  which  were  ripe  for  a  shake- 
up.  Henry's  achievements  in  raising  the  general  quality  of  the  coinage  to 
a  very  high  standard  are  all  the  more  remarkable,  given  the  state  of  the 
coinage  he  had  taken  over  from  the  defeated  Richard  III.  Though  not 
officially  debased,  the  currency  had  suffered  more  than  its  usual  share 
of  wear  and  tear,  clipping  and  counterfeiting,  sweating  and  selective 
culling  during  the  long  period  of  the  Wars  of  the  Roses  (1455-85).  Good 
domestic  currency  was  extremely  rare,  and  much  use  had  to  be  made, 
illegally,  of  imported  European  and  Irish  coinage,  almost  all  also 
grossly  underweight.  Even  the  official  scales  sold  by  the  mint  for 
checking  permissible  coinage  weights  were  found  to  be  incorrect. 
Slackness  and  malpractices  at  the  various  mints  were  far  too  common. 
An  example  was  made  of  one  such  unfortunate  mint  coiner  who  was 
hanged  at  Tyburn  in  1505. 

Before  dealing  with  the  important  matters  of  the  ways  in  which 
Henry  improved  the  currency  we  may  dwell  for  a  moment  on  an  early  if 
unimportant  lapse  on  his  part,  namely  the  issue  of  'dandyprats',  in 
order  to  indicate  how  even  as  sterling  a  character  as  Henry  could,  at  a 



time  when  he  was  particularly  hard-pressed,  temporarily  yield  to  the 
temptation  of  using  the  mints  for  a  quick  if  small  profit.  Dwarf,  sub- 
standard coins,  deprecatingly  dubbed  'dandyprats',  nominally  worth  a 
penny,  but  soon  circulating  at  only  a  halfpenny,  were  issued  by  Henry  to 
help  finance  the  siege  of  Boulogne  in  1492.  This  short-lived 
misdemeanour  was  soon,  however,  corrected.  Perhaps  the  two  greatest 
numismatic  events  for  which  Henry  is  justly  remembered  are  the  first 
issues  of  coins  exactly  corresponding  to  the  two  age-old  units  of 
account,  the  pound  and  the  shilling.  Henceforth  these  abstract 
accounting  units  were  to  have  their  concrete  counterparts  in  actual 
media  of  exchange,  eventually  considerably  simplifying  retail  trading, 
while  also  supplying  a  heavy  gold  coin  for  larger,  wholesale 
transactions.  The  quality  of  both  these  new  coins  was  of  the  highest, 
the  designs  being  made  by  Alexander  of  Bruchsal,  who  was  brought 
over  from  Germany,  and  quickly  came  to  merit  to  the  full  his 
description  as  'the  father  of  English  coin  portraiture'.  Sir  John  Craig 
has  made  the  bold  claim  that  'modern  coinage  begins  with  the  shilling 
of  Henry  VII',  while  Sir  Charles  Oman  similarly  heaps  superlative 
praise  on  the  sovereign  as  'the  best  piece  ever  produced  from  the  English 
mint'  (see  Craig  1953,  100). 

The  shilling,  also  called  the  'testoon',  carried  by  far  the  best  profile 
portrait  of  the  monarch  produced  up  till  then  on  any  English  coin. 
Similar  improvements  were  made  in  other  silver  coins,  e.g.  the  groat, 
half-groat  and  penny,  and  in  the  gold  ryal  (10s.)  and  angel  {6s.  8d.). 
Numismatically,  therefore,  there  is  no  doubt  that  the  quality  of  English 
coinage  had  been  raised  by  Henry  to  an  enviable  excellence  which  stood 
in  brilliant  contrast  both  with  what  had  passed  for  currency  previously 
and  still  more  when  compared  a  generation  later  with  the  monstrous 
debasements  carried  out  by  his  son.  Chronologically  the  sovereign  came 
first,  being  issued  significantly  in  1489,  not  only  in  order  to  imitate  the 
heavy  gold  units  then  being  issued  on  the  Continent,  but  also  to  impress 
Europe  with  the  power,  prestige  and  success  of  the  new  Tudor  dynasty 
(Challis  1978,  49).  The  shilling  or  testoon  was  not  issued  until  1504,  but 
despite  its  excellence  as  a  coin,  was  issued  in  such  small  amounts  as  to 
have  little  immediate  economic  significance.  This  contrast  between  the 
numismatic  and  economic  importance  of  the  coinage  —  where  quantity 
and  not  just  quality  is  the  main  concern  of  the  latter  -  is  also  seen, 
though  to  a  lesser  degree,  with  regard  to  the  sovereign.  A  marked 
encouragement  to  bring  bullion  to  the  mint  so  as  to  remedy  the 
shortage  of  good  coin  was  made  when  in  1489  the  seigniorage  and 
coinage  charges  were  substantially  reduced,  from  Is.  6d.  to  Is.  6d.  per 
lb  for  gold  and  from  Is.  6d.  to  Is.  for  silver.  Although  there  were  other 



factors  influencing  the  result,  there  would  appear  to  be  little  doubt  that 
this  reduction  in  mint  charges  was  at  least  partially  responsible  for  the 
average  annual  output  of  the  mints  doubling  in  the  four  years  after  1494 
compared  with  the  similar  period  before  1489,  with  the  silver  output  up 
from  £5,334  to  £9,116  (+71  per  cent)  and  gold  up  from  £8,207  to 
£18,425  (+125  per  cent). 

It  took  about  seven  years  for  the  reduction  of  the  mint  price  and  the 
drive  to  supply  new  coins  to  satisfy  the  demand  and  so  to  enable  the 
series  of  royal  proclamations  against  the  circulation  of  severely  worn  or 
clipped  domestic  coin  and  against  foreign  coin  to  become  reasonably 
effective.  By  the  end  of  the  first  decade  of  the  sixteenth  century  it  had 
become  obvious  that  the  general  quality  of  England's  coinage  had  been 
transformed.  Royal  proclamations  were  of  course  not  infallible.  It  had 
taken  several  years  to  move  the  considerable  influx  of  substandard  Irish 
pennies  and  the  even  greater  amounts  of  'Roman'  groats  and  half- 
groats  issued  by  the  Holy  Roman  Emperor,  despite  the  continued 
administrative  attempts  to  remove  the  former,  and  to  prohibit  the  latter 
by  the  specific  'Proclamation  Against  Roman  Coins'  of  1498. 

Though,  compared  with  many  of  his  other  achievements,  Henry 
VII's  currency  reforms  may  appear  of  secondary  importance,  this  view 
would  decry  the  quiet,  undramatic  but  persistent  benefits  that  good 
money  brought  to  a  country  where  commercial  activities  were  not  only 
obviously  of  central  importance,  but  were  at  the  beginning  of  a  period 
of  sustained  growth.  Henry  had  supplied  a  basic  ingredient  for  growth, 
for  when  he  died  'there  was  not  a  single  coin  in  issue  (which  is  of  course 
not  the  same  as  in  circulation)  which  he  had  not  either  introduced  or 
modified,  a  point  which  tends  to  confirm  the  old-fashioned  view  that  in 
England  the  Middle  Ages  ended  when  he  came  to  the  throne'  (Porteous 
1969,  151). 

Henry  VII's  reformed  currencies  were  maintained  with  few 
significant  changes  well  into  the  reign  of  his  son.  For  sixteen  years, 
apart  from  changing  the  VII  into  an  VIII,  the  father's  fine  portrait  was 
retained  on  all  issues  of  the  large  silver  coins,  constituting  a  most 
incongruous  and  misleading  example  of  'like  father,  like  son'.  However, 
in  contrast  to  Henry  VII's  prudent  economy  and  his  ability  to  contain 
his  expenditures  well  within  his  receipts,  Henry  VIII  in  his  later  years 
felt  himself  quite  unable  to  cope  without  raiding  the  monasteries  and 
picking  the  pockets  of  the  people.  These  interconnected  events,  together 
with  the  religious  reformation  of  which  they  were  part,  dominated 
the  economic  and  financial  history  of  the  mid-fifteenth  century.  The 
contrast  between  the  monetary  successes  of  Henry  VII  and  the 
adulterations  of  Henry  VIII  have  been  neatly  summarized  by  Sir 



Charles  Oman  as  a  move  from  'the  finest,  the  best  executed  and  the 
most  handsome  coinage  in  Europe'  to  'the  most  disreputable  looking 
money  that  had  been  seen  since  the  days  of  Stephen  -  the  gold  heavily 
alloyed,  the  so-called  silver  ill-struck  and  turning  black  or  brown  as  the 
base  metal  came  to  the  surface'  (1931,  244).  We  turn  now  to  account  for 
these  glaringly  contrasting  financial  experiences. 

The  dissolution  of  the  monasteries 

With  the  disadvantages  of  hindsight  -  which  not  infrequently  enables 
historians  to  jump  quickly  to  the  wrong  conclusions  —  it  would  at  first 
seem  credible  to  suppose  that  the  profits,  whether  from  the  dissolution 
of  the  monasteries  or  from  debasement  if  properly  extracted,  would 
have  sufficed  for  the  financial  objectives  which  Henry  VIII  had  in  mind. 
However,  that  monarch  would  have  been  unimpressed  when  offered  the 
kind  of  choice  between  alternatives  beloved  of  economists,  and  in  reply 
to  the  question  'which'  would  by  inclination  invariably  answer  'both'. 
In  fact  there  was  no  straight  choice  between  one  or  the  other:  there  was 
no  master-plan  either  for  all-out  confiscation  of  the  wealth  of  the 
Church  nor  a  once-and-for-all  general  debasement  of  the  coinage.  Both 
were  tackled  a  bit  at  a  time,  each  supplementing  the  piecemeal  proceeds 
available  from  the  other,  until  ultimately  both  sources  were  pressed  for 
all  they  could  yield.2 

Although  apparent  precedents  for  both  dissolution  and  debasement 
had  occurred  on  a  number  of  previous  occasions  in  Britain,  those  of 
Henry  VIII  stand  out  as  unique  by  virtue  of  their  scale  and  rapidity, 
compared  with  which  the  previous  examples  were  minor,  gradual  affairs. 
Furthermore,  whereas  the  two  policies  had  previously  been  unconnected, 
they  were  now  to  become  contemporaneous  and  complementary  events, 
the  one,  debasement  being  reversible,  the  other,  dissolution,  turning  out 
to  be  irreversible.  Though  overlapping  in  time  and  largely  in  objective, 
they  are,  for  ease  of  exposition,  better  dealt  with  separately. 

The  motives  which  prompted  Henry  VIII  to  take  over  possession  of 
the  monasteries  were  -  including  of  course  the  religious  -  social, 
educational,  financial  and  political.  There  can  be  no  doubt,  however, 
that  by  far  the  most  important  single  cause  was  the  king's  desperate 
need  for  money  to  finance  the  defence  of  the  realm.  Henry  VIII  is  justly 
renowned  as  'the  father  of  the  Navy'.  It  was  a  costly  business  to  equip 
the  new  ships  and  to  build  up  the  coastal  fortifications  in  preparation  for 
the  inevitable  conflicts  such  as  the  wars  with  Scotland  in  1542  and 

2  Compare  Constantine's  seizure  of  gold  from  pagan  temples;  see  above,  p.  107. 



France  in  1543.  It  was  defence  and  other  similar  costs  which  were 
specifically  claimed  in  the  various  preambles  to  the  Acts  and  Orders  of 
the  Suppression  of  the  monasteries,  shrines  and  priories  as  justification 
for  the  king's  actions,  as  well  as  the  unsurprising  denunciations  of  the 
immorality  and  laxity  of  the  monks.  A  recent  authority  on  the  history  of 
the  dissolution,  Professor  Woodward,  has  left  us  in  no  doubt  as  to  the 
main  reason  for  this  series  of  confiscatory  events.  'Finance  is  indeed 
the  key  to  the  proper  understanding  of  the  dissolution  .  .  .  the  primacy  of 
the  financial  consideration  in  governmental  thinking  ...  is  to  be  seen  in 
the  title  of  the  department  established  to  supervise  the  dissolution,  the 
'Court  of  the  Augmentation  of  the  Revenues  of  the  King's  Crown'  (1966, 
4).  Woodward  has  estimated  that  the  total  number  of  religious  houses  in 
1530  in  England  and  Wales  was  about  825,  made  up  of  502  monasteries, 
136  nunneries  and  187  friaries.  Their  wealth  came  largely  from  being 
very  extensive  landlords,  and  it  was  mainly  from  their  agricultural 
estates  that  they  derived  a  gross  annual  income  of  up  to  £200,000. 
Official  estimates  in  1535  gave  their  net  annual  income  as  £136,000,  but 
Woodward  considers  this  to  be  a  considerable  underestimate,  and  puts 
the  true  net  figure  as  'nearer  to  £175,000,  or  nearly  three-quarters  as 
much  again  as  the  average  annual  income  of  the  Crown'  (1966,  122). 
This  potential  of  nearly  trebling  the  average  ordinary  revenues  of  the 
Crown  was,  however,  never  fully  achieved  for  a  number  of  reasons,  the 
chief  one  being  that  the  king's  desperation  for  money  meant  that  he  was 
forced  hurriedly  to  sell  off  much  of  the  capital  and  so  sacrifice  what 
could  have  been  an  enormous  annual  increment  to  his  income. 

Henry's  first  attempt  to  increase  the  amount  of  revenue  was  not 
aimed  at  the  monasteries  alone  but  was  a  general  imposition  on  the 
Church  as  a  whole.  Thus  was  the  First  Fruits  and  Tenths  Act  of  1534. 
This  Act  was  almost  immediately  followed  in  the  same  year  by  the  Act 
for  the  Suppression  of  the  Lesser  Monasteries,  namely  those  with  an 
annual  income  of  less  than  £200.  This  comprised  some  two-thirds  of 
the  total  of  502  monasteries,  though  only  about  one-third  of  those 
eligible  for  suppression  were  in  fact  dissolved  under  that  Act.  As  soon 
as  the  bulk  of  the  immediately  realizable  resources  of  this  first 
suppression  were  used  up,  and  with  the  pressures  of  expenditures  still 
riding  high,  Henry  authorized  an  extension  of  his  policy  of  dissolution 
by  suppressing  the  friaries  in  1538  and  the  larger  monasteries,  mostly  in 
1539,  though  a  few  had  already  been  'voluntarily'  persuaded  to 
surrender  their  rights  to  the  Crown  in  1538.  By  1540  the  dissolution  of 
all  religious  orders  had  been  completed.  The  relatively  few  ecclesiastical 
guilds  which  remained  were  disendowed  as  the  final  part  of  the  same 
policy  by  Edward  VI  in  1547. 



The  pressing  need  for  money  meant  that  the  king  began  selling  off 
parts  of  his  monastic  property  almost  as  soon  as  it  came  into  his  hands, 
sacrificing  future  income  for  present  gain.  The  most  liquid  of  assets, 
namely  all  the  gold  and  silver  candlesticks,  crosses,  plate,  together  with 
jewels  and  so  on,  were  speedily  transferred  to  London,  much  of  it  to  be 
coined  or  sold  for  cash,  except  for  the  best  ornamental  pieces,  which 
were  retained  for  the  royal  palaces.  Excluding  these  latter  pieces,  the 
gold  and  silver  sent  to  London  were  valued  at  £75,000.  Although  not  all 
the  monasteries  were  physically  destroyed  many  of  them  were  stripped 
of  everything  of  value,  including  especially  their  bells  and  the  lead  from 
their  roofs  and  gutters,  the  bells  being  melted  and  recast  as  cannon, 
while  much  of  the  lead  was  exported.  Records  of  the  values  of  proceeds 
sent  to  London  are  fairly  complete,  and  these  are  usually  the  figures 
quoted  in  later  texts;  but  where  local  sales  took  place  no  reliable 
consolidated  figures  of  the  total  value  of  such  sales  appear  to  exist,  but 
these  are  believed  to  have  added  quite  substantially  to  the  Crown's 
liquid  resources.  The  most  important  fixed  capital  assets  were  of  course 
the  vast  landed  estates,  sales  of  which  began  immediately  and  were 
carried  on  at  a  fairly  steady  pace,  and  at  a  steady  price,  in  real  terms, 
equivalent  to  twenty  years'  yield,  directly  for  over  a  decade,  and 
indirectly  through  a  chain  of  agents,  London  merchants,  and  at  least  a 
number  of  specifically  confirmed  speculators  for  many  decades 
subsequently.  Most  of  the  land  went  to  purchasers  who  were  already 
substantial  landowners,  although  opportunities  also  existed  for  the 
newly  rising  gentry  to  acquire  smaller  and  medium-sized  estates. 

Although  most  of  the  liquid  spoils  from  dissolution  had  been  sold 
within  a  decade,  the  Crown  still  retained  considerable  estates  itself  and 
decided,  probably  on  Thomas  Cromwell's  advice,  to  dispose  of  much  of 
the  land  by  lease  for  limited  periods,  so  that  these  lots  reverted  to  the 
Crown  at  the  end  of  their  lease.  The  royal  estates  were  also  considerably 
increased  by  confiscations  and  escheats.  Consequently,  sixty  years  after 
the  dissolution  the  Crown  still  owned  substantial  amounts  of  what  were 
previously  monastic  lands,  so  that  although  the  Court  of 
Augmentations  came  to  an  end  in  1554,  the  Augmentations  office  of  the 
Exchequer  continued  to  administer  its  'monastic'  lands.  As  Tawney  has 
shown  in  his  controversial  but  stimulating  essay  on  'The  Rise  of  the 
Gentry',  'between  1558  and  1635  Crown  lands  to  the  value  of 
£2,240,000  had  been  thrown  on  the  market',  including  £817,000  sold  by 
Elizabeth,  £775,000  by  James  and  £650,000  during  the  first  decade  of 
Charles  I's  reign.  Additionally  Charles  made  sales  approaching  a 
further  £2,000,000  during  the  Civil  War  (1642-9).  Tawney  also 
confirms  the  views  of  previous  experts  on  Tudor  finance,  views  in  turn 



reflected  by  more  recent  research,  that  'few  rulers  have  acted  more 
remorselessly  than  the  early  Tudors  on  the  maxim  that  the  foundations 
of  political  authority  are  economic'  and  consequently  'had  made  the 
augmentation  of  the  royal  demesne  one  of  the  key-stones  of  their 
policy'  (Tawney,  1954,  194-5). 

Recent  historians  of  the  dissolution  (such  as  Professors  Woodward 
and  Youings)  have  tended  to  play  down  the  claims  of  the  traditionalists 
that  the  dissolution  was  'one  of  the  most  important  events  in  the  Tudor 
period  or,  indeed,  in  the  whole  of  England's  history',  and  have  stressed 
other  factors  which,  together  with  the  dissolution,  also  played  their 
part,  e.g.  the  rise  of  the  gentry,  the  increased  secularization  and 
commercialism  of  the  Tudor  Age,  the  confirmation  of  the  Protestant 
Reformation,  the  increase  in  enclosures  and  in  the  market  for  land,  and 
so  on  (Woodward  1966,  163).  While  such  research  thus  moderates  the 
extreme  views  of  the  traditionalists,  it  tends  to  confirm  the  economic, 
financial  and  fiscal  importance  of  the  dissolution,  which  is  brought  out 
with  clarity  and  much  statistical  verification,  especially  by  Professor 
Woodward.  Taxation,  dissolution  and  debasement  were  the  three 
channels  through  which  the  Crown  drew  the  revenues  necessary  to 
carry  through  its  extraordinary  duties  of  defending  the  realm  at  a  time 
when  the  ordinary  revenues  were  no  longer  sufficient  to  cover  even  the 
costs  of  normal,  peacetime  administration. 

It  was  typical  of  Henry  VIII,  the  rogue  elephant  of  the  Tudors,  that  he 
saw  no  reason  to  curtail  his  private  expenditures,  so  that  while  such 
worthy  public  defence  expenditures  as  repairs  to  Dover  harbour,  and  to 
the  fortifications  of  Calais,  the  south  coast,  etc.,  figure  largely  in  the 
preambles  to  his  acts  of  taxation,  he  still  diverted  large  sums  towards  the 
construction  of  his  palaces,  'over  £1,000  in  the  financial  year  1541—42 
alone'  (Alsop  1982,  22).  In  a  desperate  search  for  additional  finance, 
innovations  in  taxation  necessarily  accompanied  the  drastic  experiments 
in  dissolution  and  debasement.  No  longer  could  the  king  'live  of  his 
own'.  Thus  in  the  course  of  research  on  'Innovations  in  Tudor  Taxation', 
Professor  J.  D.  Alsop  reaffirms  'the  presence  of  significant  novelty  within 
Tudor  subsidy  acts'  (i.e.  taxes),  and  'confirms  that  taxation  is  most 
appropriately  studied  in  relation  to,  and  as  a  central  aspect  of,  the 
evolving  nature  of  Tudor  finance'  (1984,  91).  However  despite  all  the 
money  squeezed  by  Henry  VIII  from  taxing  his  subjects  and  from 
confiscating  the  property  of  the  religious  orders,  he  was  still,  in  the  early 
and  mid-1540s,  desperately  in  need  of  additional  resources.  Therefore, 
while  his  land  sales  were  still  proceeding,  he  turned  to  see  what  ruthless 
exploitation  of  the  coinage  could  bring  into  the  royal  coffers. 



The  Great  Debasement 

The  'Great  Debasement'  of  English  history  actually  began,  as  it  was  to 
end,  in  Ireland,  with  an  issue  of  'Irish  harps'  in  1536,  containing 
roughly  90  per  cent  of  the  silver  in  the  similar  coins  then  being  issued  by 
the  English  mints.  This  first,  moderate,  debasement  was  apparently 
accepted  without  demur,  and  so  encouraged  a  further  debasement  in 
Ireland  in  1540  and  then  in  England  in  1542,  from  which  later  time  the 
general  Tudor  debasement  is  usually  dated.  Among  the  first  to  receive 
the  debased  Irish  coins  were  members  of  the  English  army  in  Ireland. 
They  had  little  choice  but  to  accept,  as  did  the  Irish  with  whom  they 
spent  their  pay  (Challis  1978,  81-111). 

However,  the  very  much  larger  issues  required  in  England  demanded 
a  more  complex  and  subtle  approach,  at  first  based  on  attempting  to 
secure  the  voluntary  co-operation  of  the  public.  Before  briefly  charting 
the  rake's  progress  of  Tudor  debasement  we  should  remind  ourselves 
that  debasement  has  the  three  following  possible  elements:  first  the 
crying  up,  or  calling-up,  of  the  coinage,  which  means  simply  giving  new 
coins,  which  in  all  essentials  are  the  same  as  the  previous  issue,  an 
officially  decreed  higher  nominal  value;  secondly  there  is  the  not 
logically  dissimilar  method  of  making  coins  smaller  or  lighter,  though 
of  the  same  officially  designated  values  as  previously  and  out  of 
precisely  the  same  purity  of  metallic  content;  thirdly  there  is  the  process 
of  making  the  metallic  content  of  the  coins  out  of  cheaper  metals  than 
were  previously  used  and  officially  attempting  to  enforce  their 
acceptance  as  if  they  were  issued  in  the  previously  unadulterated  form. 
The  Tudors  were  guilty  of  all  three  kinds  of  debasement  and  in  practice 
it  often  became  difficult  to  disentangle  the  degree  of  importance  or,  as 
we  might  nowadays  say,  the  weight,  to  be  attached  to  any  one 
combination  of  these  three  elements  of  a  debased  currency. 

Not  all  three  forms  of  debasement  were  considered  to  be  equally 
deplorable.  In  fact  the  first  form,  namely  the  enhancement  of  the  values 
of  either  gold  or  silver,  were  fairly  common  and  acceptable  devices 
which  had  to  be  resorted  to  from  time  to  time  in  order  to  try  to  keep  the 
values  of  existing  coinage  in  line  with  current  bullion  prices.  If  bullion 
prices  were  to  rise  substantially  above  their  mint  equivalents  more  coins 
would  be  leaked  from  domestic  currency  to  foreign  markets  or  would 
find  their  way  into  the  melting-pots  of  the  goldsmiths.  The  process 
would,  of  course,  go  into  reverse  whenever  the  price  offered  by  the 
English  mint  exceeded  bullion  prices  or  the  prices  offered  by  foreign 
mints.  Where  an  element  of  rightly  deprecated  debasement  crept  in  was 
in  those  cases  where  the  official  enhancement  of  values  noticeably 



exceeded  that  justified  by  differences  between  the  mint  and  bullion 
prices.  Following  a  considerable  drain  of  gold  to  the  Continent  in  1526, 
involving  considerable  losses  of  sovereigns  valued  domestically  at  £1, 
the  sovereign  was  cried  up  to  225.,  with  similar  enhancements  for  the 
gold  angel.  Such  enhancement  was  insufficient  and  the  drain  continued 
so  that,  later  in  the  same  year,  two  related  methods  were  tried:  the 
sovereign  was  enhanced  to  225.  6d.  and  the  new  sovereigns  and  other 
gold  coins  were  issued  not  at  the  previous  standard  of  23.75  carats  but 
for  the  first  time  at  a  lower  standard  of  22  carats. 

However,  all  these  changes  were  not  unlike  those  previously  accepted 
as  tolerable,  moderate  changes  fully  justified  by  the  circumstances  of 
the  time  and  not  to  be  considered  as  belonging  to  the  phase  of  Henry's 
real  debasement.  It  was  not  therefore  until  the  silver  coinage  began  to 
be  more  substantially  adulterated  in  the  1540s  that  the  debasement 
movement  really  got  under  way.  The  Irish  experiments  had  proved  that 
the  mints  could  become  a  much  more  profitable  source  of  finance  for 
the  hard-pressed  monarch. 

Debasement  was  therefore  a  matter  of  degree  and  of  conscience. 
Moderation  might  be  successful  in  the  sense  of  being  generally  accepted 
by  the  public  since,  with  so  many  of  the  coins  in  general  circulation 
being  imperfect  and  underweight,  even  the  new  coins,  as  normally 
marginal  additions  to  the  currency,  would  seem  preferable  to  the 
average  coin  in  circulation.  However,  success  in  the  sense  of  being 
accepted  by  the  general  public  (if  not  by  the  professional  money-changers) 
implied  relatively  modest  profits  for  the  Crown.  If  greater  profits  were 
sought  then,  by  some  means  or  other,  attempts  had  to  be  made  to 
hide  from  the  public  the  degree  of  debasement  actually  being 
achieved,  at  least  long  enough  for  the  king  to  receive  his  initial  gains. 
Debasement  thus  became  literally  a  hidden  form  of  taxation  from  its 

Deception  alone  would  not  have  been  enough  since  professional  coin 
exchangers,  bullion  dealers  and  merchants  quickly  became  aware  of 
such  deception.  The  main  engine  of  debasement  was  the  official 
announcement  of  a  higher  mint  price  so  as  to  induce  voluntary 
offerings  by  such  professionals  of  existing  coin  and  bullion  to  the  mint 
in  order  to  receive  more  new  coins,  admittedly  of  a  lighter,  adulterated 
or  enhanced  valuation,  from  the  mint.  In  other  words  the  mint  price 
had  to  be  substantially  increased  in  order  to  increase  substantially  the 
voluntary  flow  of  silver  and  gold  coins,  bullion  and  plate  to  the  mint. 
With  regard  to  plate,  the  vast  amounts  coming  from  the  monasteries, 
chantries  and  shrines  were  fed  straight  into  the  mint,  and  since 



these  were  involuntary  supplies  they  did  not  of  course  require  the 
inducement  of  a  higher  mint  price.  As  Professor  Gould  has  shown,  in 
his  authoritative,  interesting  and  detailed  study  of  the  subject,  it  is 
certain  that  'during  the  Great  Debasement  there  was  a  substantial 
monetization  of  plate  and  ornament  from  the  suppressed  religious 
houses'  (Gould  1970,  33).  Hence  it  was  no  accident  that  the 
'ecclesiastical'  mints  of  Canterbury  and  York  were  busily  reactivated 
as  being  ideally  placed  to  deal  with  the  new  flood  of  monasterial  plate. 

In  May  1542  a  moderate  increase  in  mint  price  was  announced 
followed  by  a  series  of  more  substantial  increases,  beginning  in  May 
1544.  Thereafter  mint  activity  rose  apace,  for  it  was  very  much  in  the 
individual  interests  of  those  who  could  do  so  to  take  advantage  of  the 
higher  mint  prices.  Thus,  as  Professor  Gould  shows  in  a  most 
instructive  example,  if  anyone  in  possession  of  sixty-four  testoons 
(shillings)  minted  in  1544,  and  then  worth  £3.  4s.,  brought  them  to  the 
mint  for  recoining  in  1550,  he  would  receive  the  equivalent  of  £4.  0s.  Qd. 
worth  of  new  coins,  i.e.  an  increase  of  25  per  cent  for  each  pound 
weight  of  silver  (1970,  18).  Indeed  so  successful  was  the  king  in 
attracting  supplies  to  the  mint  after  1544  that  in  the  following  year  or 
shortly  thereafter,  six  new  mints  were  opened  or  reopened  to  help  the 
original  Tower  mint  to  cope  with  the  flood  from  both  voluntary  and 
'monasterial'  sources.  Three  of  these  new  mints  were  in  London 
(another  one  in  the  Tower  plus  one  at  Durham  House  in  the  Strand  and 
at  South wark),  while  the  three  others  included,  as  well  as  those  already 
referred  to  at  Canterbury  and  York,  a  newly  built  mint  at  Bristol.  The 
Tower's  Irish  coinage,  where  the  first  debasement  experiments  began  in 
1536,  was  also  supplemented  from  time  to  time  by  issues  from  the 
Dublin  mint.  During  the  later  stages  of  debasement  the  flow  of  gold  and 
silver  from  the  general  public  was  greatly  reduced,  and  so  the  greater 
proportion  of  bullion  came  from  the  government  itself.  One  such  means 
was  through  arranging  loans  from  the  German  firm  of  Fuggers  to 
purchase  supplies  of  silver  directly  from  its  mines. 

The  process  of  physical  debasement  from  the  original  pure  sterling 
silver  standard  reached  75  per  cent  silver  by  March  1542,  50  per  cent  by 
March  1545,  33V?  per  cent  by  March  1546,  and  reached  its  nadir  of  25 
per  cent  under  the  young  King  Edward  VI  in  1551.  The  mainly  copper- 
alloy  coins  were,  in  order  to  improve  their  acceptability,  'blanched' 
from  1546  onwards,  by  applying  a  thin  surface  coating  of  purer  silver,  a 
subterfuge  which  quickly  wore  thin  to  show  the  red  copper  underneath 
-  hence  Henry  VIII's  well-earned  nickname  'old  copper-nose'.  In 
contrast  to  the  gross  adulteration  of  silver,  the  gold  coinage  remained 



close  to  purity  throughout  the  debasement  period,  its  least  pure  level 
being  the  twenty-two  carats  (or  eleven-twelfths  fine)  which  it  had 
registered  in  1526,  and  again  (after  restoration  to  over  twenty-three 
carats)  in  1542.  It  was  rather  through  'enhancement',  or  crying  up  its 
official  price,  that  the  policy  of  debasement  was  pursued  in  the  case  of 
gold,  and  even  then  to  a  much  more  moderate  degree  than  with  the 
silver  coinage.  Thus  whereas  the  mint  price  of  1  lb  weight  of  fine  silver 
rose  from  £2.40  to  £6.00  between  1542  and  1551,  i.e.  150  per  cent,  the 
mint  price  of  1  lb  weight  of  fine  gold  was  raised  only  from  £28.80  to 
£36.05  during  that  same  period,  an  enhancement  of  only  25  per  cent. 
The  degree  of  change  in  the  silver  to  gold  ratio  —  from  around  12:1  in 
1542,  to  about  6:1  for  a  short  time  in  the  early  part  of  1551  -  was  clearly 
untenable,  and  a  ratio  nearer  the  customary  12:1  ratio  was  restored 
later  in  1551,  by  almost  halving  the  mint  price  of  silver  overnight. 

These  variations  in  the  relative  mint  prices  of  gold  and  silver  were  not 
readily  removed  by  what  we  might  term  'arbitrage',  at  least  not  so  far  as 
the  use  of  coinage  within  England  was  concerned,  for  the  coins  were 
almost  invariably  accepted  at  their  face  values.  Although  this  was  truly 
a  bimetallic  period,  nevertheless  silver  was  mainly  the  medium  of  retail 
and  domestic  trade,  whereas  gold  became,  during  the  debasement 
period  especially,  mainly  the  medium  of  wholesale  and  foreign  trade. 
This  is  borne  out  by  the  statistics  of  the  exchange  rates  between  London 
and  Antwerp.  Instead  of  sterling  falling  to  the  weighted  average  of  the 
silver  and  gold  debasement,  the  £  sterling  fell  considerably  less  than 
that  average  on  the  Antwerp  market,  and  was  much  more  in  line  with 
the  far  more  moderate  debasement  of  gold.  Indeed,  in  many  foreign 
contracts  the  receipt  of  debased  silver  coin  was  unacceptable,  while 
even  the  attempts  of  the  King's  Council  to  force  foreigners  to  accept  its 
declared  enhanced  price  for  gold  was,  much  to  their  chagrin,  ignored. 
They  would  not  accept  the  Council's  assurance  that  the  pound  in  their 
pockets  was  not  devalued. 

The  degree  to  which  the  fall  in  the  value  of  the  pound  on  the  foreign 
exchanges  acted  as  a  stimulus  to  English  exports  and  a  constraint  on 
imports  has  been  very  much  a  matter  of  lively  dispute  among  economic 
historians  in  the  past  couple  of  generations.  There  are  those,  like 
George  Unwin,  who  argued  forcibly  that  the  evils  of  progressive 
debasement  followed  by  the  uncertainties  of  reform,  dislocated  and 
drastically  upset  trade  relations,  thus  reducing  exports  as  well  as 
imports  (Unwin  1927,  149).  Others,  like  F.  J.  Fisher,  however,  argued 
equally  strongly  that,  like  modern  devaluations,  after  a  time-lag  (the  J- 
curve  effect  as  we  would  say)  the  cheaper  pound  led  to  a  huge  surge  in 
exports  and  a  decrease  in  imports  (1940,  95-117).  More  recent  detailed 



studies  by  Professor  Gould,  Dr  Challis  and  others  have  demonstrated 
conclusively  that  Professor  Fisher's  claims  were  exaggerated,  in  that  the 
figures  he  gave  relating  to  cloth  exports  from  London  took  insufficient 
account  first  of  the  continuing  exports  of  wool,  and  secondly  of  the  fact 
that  London  had  for  many  years  been  increasing  its  share  of  total 
national  exports  at  the  expense  of  provincial  ports.  Basing  national 
exports  on  London's  experience  was  therefore  bound  to  exaggerate  the 
national  increase  in  exports.  Nevertheless,  despite  some  debatable 
degree  of  exaggeration,  there  appears  to  be  a  consensus  as  to  the  main 
point,  namely  that  the  Great  Debasement  had  a  direct  and  considerable 
effect  on  terms  of  trade,  raising  the  price  of  imports  and  reducing  the 
price  of  exports.  Since,  however,  the  degree  of  gold  debasement  was  so 
very  much  less  than  the  silver  debasement,  and  since  money  markets 
were  less  perfect  in  the  sixteenth  century  than  today,  one  should  not 
attribute  too  much  influence  on  commodity  trade  flows  to  debasement 
in  the  mid-sixteenth  century,  when  there  were  other  powerful  structural 
factors  also  at  work. 

The  extent  of  the  profit  gained  by  the  Crown  during  the  main  period 
of  the  debasement,  1544-51  inclusive,  had  been  considerably 
underestimated  by  economic  and  monetary  historians  until  the 
painstaking  researches  of  Dr  Challis  and  Professor  Gould.  The  main 
reason  for  this  was  that  previous  calculations  were  based  almost 
exclusively  on  the  output  of  the  Tower  mints  to  the  neglect  of  the 
substantial  contributions  of  the  other  six  mints.  If  during  the  eight-year 
period  in  question  one  compares  the  revised  figures  of  net  profits  from 
debasement,  £1,270,684,  with  the  other  two  main  sources  of  finance 
available  to  the  Crown,  namely  the  net  yield  of  all  taxation,  £976,000, 
and  the  net  proceeds  from  the  disposal  of  monastic  properties, 
£1,056,786,  then  debasement  is  seen  to  yield  more  than  either  taxation 
or  dissolution  (Challis  1978,  254-5). 

Debasement  had  run  its  main  course  by  mid-1551  and  had  been 
squeezed  dry,  while  the  Crown  still  retained  much  of  the  monastic 
estates  and  taxable  capacity  remained  practically  intact.  The  Crown 
extracted  its  profits  from  debasement  by  arbitrarily  and  indeed 
fraudulently  increasing  its  'seigniorage',  that  is  the  difference  between 
the  total  cost  of  producing  the  new  coins  and  their  face  value,  from  a 
reasonable  to  a  plainly  unreasonable  extent,  and  thus  increasing  the 
average  annual  rate  of  profit  from  minting  from  the  negligible  £100  or 
£200  received  by  Henry  VII  to  the  vast  annual  average  of  nearly 
£160,000  enjoyed  by  Henry  VIII  and  Edward  VI.  Corresponding  exactly 
to  royal  gain  was  the  cost  to  the  public  -  the  cost  of  inflicting  on  the 
country  the  worst  currency  it  had  ever  suffered  (with  the  doubtful 



exception  of  that  of  Stephen  and  Matilda).  It  was  the  general  public  - 
who  possessed  and  used  mainly  silver  and  rarely  if  ever  aspired  to  gold  - 
who  bore  the  brunt  of  the  diffused  and  hidden  taxation  brought  about 
by  debasement,  rather  than  the  richer  sections.  After  all,  only  7  per  cent 
of  the  Crown's  profit  came  from  minting  gold,  compared  with  93  per 
cent  coming  from  silver.  It  was  possibly  the  inconvenience  rather  than 
simply  the  increase  in  prices  associated  with  debasement  that  was  the 
major  burden  borne  by  the  mass  of  the  population  -  a  matter  which 
will  be  discussed  later,  as  part  of  our  examination  of  the  long-term 
general  inflation  of  European  prices,  in  which  debasement  almost 
certainly  played  a  relatively  minor,  though  not  unimportant,  role. 

Numismatically  Henry  VIII  was  plainly  a  disaster.  Yet  it  would  be 
wrong  to  judge  that  gifted,  dynamic  and  hard-pressed  monarch  too 
severely  simply  by  reference  to  the  notoriety  which  he  has  earned 
through  his  related  policies  of  dissolution  and  debasement.  Had  it  not 
been  for  these  two  admittedly  drastic  and  exceptional  forms  of 
taxation,  then  either  there  would  have  been  no  strong  navy  of  seventy- 
one  ships,  or  the  normal  burdens  of  taxation  and  borrowing  would  have 
been  raised  to  unacceptable  levels  and  thus  possibly  have  brought 
forward  the  constitutional  struggle  that  disrupted  the  Stuart  monarchy 
and  brought  the  return  of  civil  war  a  century  later.  It  was  of  course  not 
the  least  of  the  advantages  of  debasement,  so  far  as  the  king  and  his 
advisers  were  concerned,  that  coinage  was  a  recognized  royal  monopoly 
and  so  its  profits  were  independent  of  parliamentary  approval. 
Although  the  main  drive  to  debase  the  currency  had  exhausted  its 
possibilities  in  England  by  mid-1551,  the  process  was  continued  until 
1560  in  Ireland,  where  Henry's  debasement  policy  was,  as  we  have  seen, 
first  tried  out.  By  1560  Elizabeth  decided  on  a  vigorous  policy  for  the 
reform  of  the  debased  currency. 

Recoinage  and  after:  Gresham 's  Law  in  action,  1560-1640 

When  the  nine-year-old  King  Edward  succeeded  his  father  in  1547  his 
advisers  were  forced  to  maintain  the  fiscal  policies  inherited  from 
Henry  VIII.  An  early  attempt  to  raise  the  quality  of  gold  and  silver 
coinage  in  mid-1547  was  doomed  to  failure  as  it  became  obvious  that 
such  attempts  were  premature;  the  new  king  could  not  do  without  the 
fiscal  support  of  continued  debasement.  Between  1547  and  1549  various 
attempts  were  made  to  combine  increased  purity  with  decreased 
weight,  but  the  result  was  merely  to  increase  the  general  confusion.  The 
confusion  and  the  degree  of  debasement  reached  its  climax  in  1551 
when  the  'three  ounce'  silver  (i.e.  only  25  per  cent,  full  silver  being  12 



ounce)  was  issued  in  April  1551.  In  October  of  the  same  year  the  policy 
was  changed;  the  main  period  of  debasement  had  come  to  its  inevitable 
end.  Mint  activity  was  drastically  reduced,  the  mints  outside  London 
(except  Dublin)  were  closed  down,  the  values  of  the  most  debased  silver 
issues  were  down  to  half  their  nominal  values,  the  debased  shillings 
being  revalued  at  sixpence  etc.,  and  the  future  new  issues  of  most  of  the 
coinage  were  brought  up  to  or  near  the  customary  levels,  at  least  for 
England  and  Wales,  though  not  for  Ireland.  The  existing  circulation, 
however,  still  consisted  mostly  of  the  base  coins  issued  in  the  previous 
years.  Henry's  policy  of  confiscating  the  wealth  of  the  religious  houses 
was  also  maintained  not  only  by  the  suppression  of  the  chantries  in 
1548-9  but  also  with  seizure  of  the  gold  and  silver  plate  from  the  parish 
churches  in  1553  (leaving  only  the  bare  necessities  for  Holy 
Communion),  a  haul  which  brought  in  some  £20,000  to  the  depleted 
royal  coffers.  In  sum,  despite  ostentatious  efforts  at  reform,  the  main 
fiscal  policies  of  debasement  and  dissolution  were  still  being  carried 
out,  insofar  as  any  further  yields  were  possible  from  these  sources,  in 
the  six  years  of  the  unfortunate  reign  of  Edward  VI. 

During  the  equally  brief  reign  of  Mary,  the  mints  were  modestly 
active,  continuing  the  policy  of  producing  good-quality  coinage  for 
England  and  base  money  still  for  Ireland.  Much  of  the  new  supplies 
came  from  Spanish  coinage  purchased  by  Thomas  Gresham,  the  royal 
agent  in  Antwerp,  who  was  thus  attempting  to  supplant,  or  at  least 
supplement,  bad  money  with  good.  Some  of  the  most  numismatically 
interesting  issues  were  the  sixpence  and  shilling  coins  bearing  the  busts 
of  Mary  and  her  husband  Philip  of  Spain  face  to  face,  another  small  but 
significant  example  of  the  growing  influence  of  Spain  on  English 
monetary  history.  Feavearyear  probably  underestimates  Mary's 
contribution  to  the  solution  of  Tudor  monetary  troubles  not  simply  by 
his  repetition  of  Ruding's  assertion  that  'the  mints  were  inactive  during 
most  of  the  reign'  (1963,  74),  but  more  importantly  by  ignoring  the 
investigations  among  her  advisers  on  how  best  to  reform  the  currency. 
Despite  her  strong  encouragement  to  seek  a  solution,  no  action  was 
taken.  Nevertheless  these  preliminary  discussions  no  doubt  contributed 
significantly,  in  Dr  Challis's  view,  to  the  speed  with  which  Elizabeth  was 
able  to  take  action  to  end  the  curse  of  a  thoroughly  discredited 

Thus  it  was  not  until  Elizabeth  I  had  established  herself  that  the 
problem  of  how  to  reform  the  deplorably  bad  coinage  in  circulation 
began  to  be  tackled  with  any  degree  of  vigour.  The  dual  problem  which 
had  to  be  solved,  if  the  country  were  again  to  enjoy  a  sound  currency, 
was  not  simply  to  replace  the  base  coins  with  good,  but  how  to  do  so 



without  saddling  the  Crown  with  insupportable  costs.  In  the  event  this 
difficult  task  was  accomplished  with  complete  success  -  indeed  with  a 
surprising  degree  of  profit  coming  to  the  Crown  at  the  end  of  the 
operation.  Again,  as  in  the  process  of  debasement,  it  was  the  general 
public  who  paid  the  price  for  enjoying  once  more  the  traditionally  high 
standards  of  sterling  silver  and  full-bodied  gold  -  standards  generally 
higher  than  those  obtaining  over  the  rest  of  Europe. 

The  task  of  replacing  bad  money  with  good  was  a  most  formidable 
one.  Although  Gresham's  Law,  that  bad  money  drives  out  good,  was 
well  known  long  before  Gresham's  time,  it  was  justly  gaining 
prominence  at  this  period  because  of  its  extremely  urgent  topicality  and 
the  enormous  size  of  the  debased  circulation  compared  with  the 
minuscule  amount  of  new  full-bodied  coins.  Consequently  if  the  new 
unadulterated  coinage  were  produced  at  the  normal  rate  to  add  its 
marginal  contribution  to  the  existing  debased  currencies,  the  new 
would  immediately  have  disappeared  either  legally,  by  simply  being 
withheld  from  circulation,  or  illegally  by  being  melted  down  or 
exported  despite  all  the  legal  penalties  against  such  action.  Faced  with 
problems  of  such  a  size  and  complexity,  the  reform  of  the  coinage  would 
have  to  satisfy  the  following  conditions:  first  the  recoinage  would  have 
to  be  done  quickly,  otherwise  the  old  would  swamp  the  new;  secondly 
the  scale  of  the  operation  would  have  to  be  so  large  as  to  enable  as 
complete  a  replacement  of  the  coinage  as  possible  rather  than  simply 
gradually  supplementing  the  old  circulation;  thirdly  with  the  same 
sense  of  urgency  and  on  the  same  large  scale,  the  public  had  to  be 
induced  to  hand  in  its  old  debased  coinage  in  return  for  the  new; 
fourthly  the  whole  expensive  programme  had  to  be  carried  through 
without  any  final  net  cost  to  the  Crown;  fifthly  to  provide  an  initial 
supply  of  bullion  to  start  the  process  going  and  to  act  as  a  reserve  to 
meet  the  inevitable  gaps  between  the  flow  of  new  coins  into  circulation 
and  the  counterflow  of  old  coins  back  into  the  mint,  it  would  be 
necessary  to  secure  a  large  amount  of  gold  and  silver  bullion  from 
abroad.  There  were  a  number  of  other  conditions  subsumed  in  the 
above  such  as  the  ability  to  maintain  secrecy  at  certain  stages  in  the 
programme,  the  reinforcement  of  the  fear  of  the  consequences  of 
breaking  the  law  on  the  export  or  melting  down  of  coinage,  and  the 
need  to  set  up  an  agency  network  throughout  the  country  to  enable  the 
exchange  of  currency  to  proceed  as  smoothly  as  possible. 

Following  a  series  of  detailed  investigations  in  which  the  queen 
herself  was  directly  involved,  an  agreed  plan  was  adopted  and  a  series  of 
royal  proclamations  were  issued  between  27  September  and  9  October 
1560  -  the  current  equivalent  of  a  modern  'white  paper'  -  announcing 



the  government's  intention  to  proceed  with  the  recall,  revaluation  and 
recoinage  of  all  the  base  moneys,  and  warning  the  public  that  the  legal 
punishments  against  exporting  or  melting  coins  would  be  carried  out 
with  the  greatest  severity.  These  proclamations  also  gave  details  of  the 
'crying  down'  or  devaluation  of  the  existing  coinages  (to  an  extent 
sufficiently  less  than  their  precious  metal  content  so  as  more  than  to 
cover  the  costs  of  the  whole  operation).  The  less  debased  coins  were 
devalued  by  25  per  cent,  while  the  most  grossly  debased  types  were 
devalued  by  more  than  50  per  cent.  A  final  date,  9  April  1561,  was  given 
after  which  the  debased  coins  would  no  longer  be  legal  tender,  and 
further  to  speed  the  change  a  bonus  of  3c/.  per  £1  was  given  on  certain 
types  exchanged  before  the  end  of  stipulated  dates  between  January  and 
August  1561.  To  assist  the  public  in  sorting  out  the  tangle  of  the  various 
issues  goldsmiths  throughout  the  country  were  appointed  as  agents  for 
such  exchanges. 

The  related  difficulties  of  speed  and  scale  were  dealt  with  by  greatly 
expanding  the  Tower  mint  by  building  the  largest  extension  of  any  of 
the  mints  built  during  the  whole  Tudor  period,  by  increasing  the 
number  and  quality  of  assayers,  craftsmen  and  metalworkers,  a  number 
of  them  being  attracted  from  foreign  mints,  and  by  introducing  for  the 
first  time  the  latest  continental  presses  for  producing  'milled'  coin 
which,  after  early  failures,  eventually  markedly  improved  the  quality  of 
the  coins.  This,  combined  with  their  increased  purity,  greatly  aided 
their  ready  acceptability  by  the  public.  The  total  of  base  coinage  in 
circulation  has  been  variously  estimated  at  between  the  low  figure  of 
£940,000  (given  by  Sir  Albert  Feavearyear)  and  the  rather  higher  and 
more  precisely  accurate  figure  of  £1,065,083  (given  by  Dr  Challis). 
Recoinage  of  anything  near  such  a  vast  amount  could  be  accomplished 
only  by  taking  in  the  debased  currencies,  separating  the  debased 
constituent  from  the  varying  degrees  of  precious  metals  they  contained 
so  as  to  form  the  basis  of  the  new  issues. 

The  main  contract  for  separating  the  copper  from  the  precious 
metals  was  already  being  negotiated  by  Sir  Thomas  Gresham  in  mid- 
1560,  and  as  a  result  was  given  in  November  to  a  German  company 
under  Daniel  Ulstate,  which  company  ultimately  separated  about  83 
per  cent  of  the  base  metals,  with  the  London  company  of  Peter  Osborne 
and  the  mint  itself  sharing  the  other  17  per  cent.  It  was  Gresham  also 
who  negotiated  a  loan  of  200,000  crowns  in  Antwerp  in  January  1560 
for  the  purpose  of  securing  the  reservoir  of  bullion  required  to 
supplement  the  main  supplies  coming  from  the  influx  of  domestic 
debased  coinage.  Since  the  actual  recoinage  began  only  in  December 
1560  and  yet  was  finished  by  24  October  1561,  the  whole  process, 



despite  a  frighteningly  slow  start,  was  actually  achieved  in  a  very 
commendably  short  space  of  time,  thus  minimizing  the  difficulties, 
bottlenecks  and  shortages  inevitably  associated  with  such  a 
fundamental  change  in  the  basic  -  indeed  almost  the  only  -  monetary 
medium.  The  currency  had  been  transformed,  its  high  prestige  had  been 
restored  and  the  whole  costly  operation  had  been  so  finely  managed 
despite  the  many  difficulties  that  it  yielded  a  handsome  but  not 
excessive  profit  to  the  queen  of  about  £50,000.  A  grateful  queen  granted 
Sir  Edward  Peckham  and  three  other  mint  officials  the  right  to  choose 
their  personal  coat  of  arms.  Dr  Jeremy  Gerhard,  when  Deputy  Master 
of  the  Mint,  kindly  informed  the  writer  concerning  an  interesting 
coincidence,  in  that  Peckham's  choice  included  the  'cross  and  crosslets' 
design,  a  feature  which  came  to  light  again  recently  when  Queen 
Elizabeth  II  granted  the  Royal  Mint,  now  at  Llantrisant  (The  Church  of 
the  Three  Saints),  its  own  smaller  three-crosses  mint  mark,  which 
appears  on  the  edge  of  all  current  £1  coin  issues. 

Compared  with  the  trauma  of  the  Great  Debasement  and  the 
curative  surgery  of  Elizabeth's  recoinage,  the  rest  of  Tudor  and  early 
Stuart  monetary  history  turned  out  to  be  rather  humdrum,  with  just 
one  exception  -  the  silent  secular  inflation  from  about  1520  to  1640, 
which  baffled  contemporary  and  much  subsequent  opinion.  In 
debasement  and  recoinage  the  Crown  had  been  betting  with  a  double- 
headed  penny,  extracting  profits  both  through  crude  adulteration  and 
cunning  recovery,  but  each  time  at  the  expense  of  the  general  public. 
The  public  never  forgot  the  lesson  and  subsequently,  until  the  coming  of 
modern  paper  money,  never  allowed  the  monarchy  to  profit 
substantially  again  through  debasement  or  reform,  thus  relieving  the 
basic  currency  of  the  kingdom  from  its  occasionally  heavy  fiscal 
burdens.  By  the  1580s  Elizabeth's  normal  average  annual  income  from 
the  mint  was  down  to  around  £700,  or  not  more  than  about  3  per  cent 
of  her  ordinary  revenue.  Her  prudence  and  economy  in  expenditure, 
characteristics  she  inherited  from  her  grandfather  Henry  VII,  together 
with  her  share  of  the  influx  of  treasure  from  the  New  World  and  her 
propensity  to  live  off  the  backs  of  the  barons  whom  she  made  a  habit  of 
visiting,  complete  with  her  courts  and  royal  household,  just  enabled  her 
to  manage  to  balance  her  income  and  expenditure,  despite  the  rise  in 
prices  which  doubled  during  her  reign  and  quadrupled  during  the 
Tudor  period  as  a  whole. 

Among  the  relatively  minor  monetary  problems  which  deserve 
mention  were  those  associated  with  getting  the  right  proportions  of 
coin  denominations  in  relation  to  the  demand.  The  march  of  inflation 
made  larger  coins  more  and  more  necessary,  and  the  Tudors  correctly 



anticipated  the  demand  with  their  issues  of  the  golden  sovereign  and 
the  silver  crowns  and  shillings.  It  was  the  production  of  these  that  was 
given  the  greatest,  but  not  exclusive,  emphasis  in  the  initial  stages  of  the 
recoinage.  Indeed  so  many  shillings  were  issued  in  1560  and  1561  that 
there  was  found  to  be  no  need  to  mint  any  more  shillings  for  a  further 
twenty-one  years.  It  was  at  the  other  end  of  the  range  that  the  greatest 
difficulties  occurred  and  from  time  to  time  there  was  such  a  shortage  of 
pennies,  halfpennies  and  farthings  that  local  issues  of  copper  tokens 
appeared  in  a  number  of  towns  including  Norwich,  Oxford,  Worcester, 
and  especially  Bristol,  a  town  granted  official  permission  in  1577  to 
issue  £30  worth  per  annum  of  copper  coin.  The  main  reason  why  the 
official  mints  tended  to  produce  insufficient  small  coins  lay  in  the  fact 
that  the  rate  of  payment  for  producing  small  coins  was  unremunerative 
compared  with  that  for  the  larger  coins. 

A  fairly  ingenious,  though  at  first  sight  apparently  peculiar,  solution 
was  the  issue  from  1572  to  1582  of  a  three-halfpenny  and  of  a  three- 
farthing  coin.  The  latter  could,  for  example,  be  given  in  change  for  a 
penny  for  any  purchase  of  a  farthing's  worth  of  goods  and  thus  to  some 
extent  it  obviated  the  need  to  use  or  coin  the  impossibly  small  and 
unprofitable  silver  farthing.  Silver  farthings,  like  the  silver  groats,  were 
no  longer  issued  -  with  a  very  few,  trivial  exceptions.  In  1583  the  three- 
halfpenny  and  three-farthing  issues  were  discontinued,  with  the  more 
normal  2d.,  Id.  and  halfpenny  coins  being  issued  as  usual,  until  the 
silver  halfpenny  also  ceased  being  issued  in  the  1650s.  The  silver  penny 
continued  to  be  issued  right  up  until  1820  inclusive,  thus  ending  an 
astonishing  national  numismatic  record  of  around  1,100  years.  In  1601 
the  price  of  bullion  having  again  got  out  of  line  with  the  mint  prices,  the 
weights  of  the  gold  and  silver  coinage  were  reduced  slightly,  gold  by 
rather  more  than  silver,  so  that  the  gold/silver  ratio  was  reduced  from 
11:1  to  10.8:1,  just  at  the  time  when  the  plethora  of  silver  was  working, 
in  the  rest  of  the  world,  to  increase  the  gold/silver  ratio.  Copper,  having 
become  synonymous  with  debasement,  was  not  acceptable  as 
subsidiary  coinage  until  the  memory  of  that  era  had  faded,  though 
some  copper  pennies  for  circulation  in  Ireland  were  produced  at  the 
London  mint  in  1601,  another  experiment  later  hesitatingly  copied  in 
Britain.  Despite  some  particular  shortages,  Tudor  tradesmen  had  a 
bewildering  variety  of  coinage  denominations  to  supply  their  needs, 
varying  from  the  heavy  'fine-gold'  sovereign  (of  979  parts  per  thousand) 
valued  at  305.,  through  the  'crown  gold'  sovereign  (of  916  parts  per 
thousand)  valued  at  205.,  the  half-pound,  crown,  half-crown,  ryal,  angel 
half-angel,  quarter-angel  -  also  in  gold.  Silver  issues  included  the 
shilling,  sixpence,  groat,  three-pence,  the  half-groat  or  two-pence, 



three-halfpence,  penny,  three-farthings,  halfpenny  and  farthing. 
Obviously  with  such  a  variety  to  play  the  exchanges,  traders  were  not 
too  discomforted  by  the  occasional  lack  of  particular  denominations, 
except  for  the  smallest  coins  where  the  official  issues  remained 
insufficient  to  meet  demand. 

Turning  to  look  at  the  circulation  as  a  whole,  at  the  peak  of  the 
debasement  in  mid-1551,  the  total  coinage  in  existence,  which  was  then 
by  far  the  main  component  of  the  money  supply,  stood  at  £2.66  million. 
Whatever  may  have  been  the  shortages  immediately  occurring,  part  of 
the  increased  world  supplies  of  silver  found  their  way  to  Britain  so  that, 
apart  from  difficulties  between  the  balance  of  various  coin 
denominations,  the  total  circulation  began  to  grow  shortly  after  the 
debasement  and  continued  throughout  the  rest  of  the  sixteenth  century. 
By  1600  the  circulation  was  thus,  at  around  £3.5  million,  one-third 
higher  even  than  the  swollen  total  existing  at  the  peak  of  the 
debasement  in  July  1551,  so  that,  in  macro-economic  terms,  the 
aggregate  money  supply  seemed  to  be  quite  adequately  provided  with 
its  basic  ingredient  when  the  last  of  the  Tudors  was  succeeded  by  the 
first  of  the  Stuarts. 

When  James  VI  of  Scotland  came  to  rule  as  James  I  of  England 
(1603-25)  the  union  of  the  crowns  led  naturally  to  a  partial  union  of  the 
coinage,  celebrated  first  with  the  issue  of  the  gold  'Unite',  of  exactly  the 
same  weight  and  purity  as  the  205.  sovereign,  from  1604  to  1619.  This 
was  replaced  with  a  slightly  lighter  'Laurel',  also  valued  at  £1,  in  1620. 
Not  so  easily  assimilated,  however,  were  the  much  more  important 
issues  of  silver  coins,  since  these  were  far  more  debased  in  Scotland 
which  had  long  imitated  the  worst  continental  practices.  For  example, 
the  Scots'  silver  mark  had  to  be  valued  in  England  at  the  infuriatingly 
inconvenient  valuation  of  13. 5c/.,  whereas  the  English  mark  was  still 
nominally  worth  6s.  8c/.  At  last  the  awkward,  niggling  problem  of 
securing  an  adequate  supply  of  low-value,  subsidiary  coinage  for 
Britain  as  well  as  simply  for  Ireland  had  to  be  tackled. 

To  the  annoyance  of  the  Crown,  the  gap  was  being  filled  with  token 
coins,  most  commonly  made  of  lead.  These  were  issued  by  a  rabble  of 
unofficial  minters,  which  had  grown  by  1612  to  the  huge  total  of  3,000, 
and  who  paid  the  king  nothing.  Because  the  Royal  Mint  found  the 
whole  business  of  copper  coinage  unprofitable  and  undignified,  and 
since  it  diverted  skilled  manpower  away  from  the  somewhat  more 
profitable  business  of  coining  gold  and  silver,  the  king  decided  to  resort 
to  outside  official  agents,  a  device  subsequently  used  on  a  number  of 
occasions  when  the  royal  mints  were  under  pressure.  The  first  such 
outside  agent,  Lord  Harington,  began  issuing  copper  farthings  under 



licence  in  1613.  His  contract  had  stipulated  that  half  the  profits  were  to 
go  to  the  king,  who  had  hoped  thereby  to  gain  around  £35,000.  When, 
six  months  later,  Harington  died,  the  total  profits  had  amounted  to 
only  £300.  The  licence  was  next  transferred  to  the  Duke  of  Lennox  and 
thereafter  to  a  succession  of  hopeful  buyers.  Similar  licences  were  later 
issued  by  Charles  I  to  the  Duchess  of  Richmond  and  to  Lord  Maltravers 
until  all  such  private  licences  were  revoked  by  the  Commonwealth 
Parliament  in  1644.  Following  this  self-righteous  act  the  shortage  of 
low-value  coins  intensified,  again  leading  to  a  mushrooming  of 
municipal  and  other  private  traders'  mints  all  over  the  country  which 
issued  tokens  of  copper  farthings,  halfpennies  and  pennies  on  and  off 
for  almost  the  next  thirty  years.  Finally,  in  1672  the  Royal  Mint  itself 
took  over  direct  responsibility  for  the  issue  of  copper  coinage.  An 
interesting  example  of  financial  devolution  and  vertical  integration  was 
shown  in  1637  when  a  branch  of  the  Tower  mint  was  established  at 
Aberystwyth  Castle,  its  coins  being  appropriately  stamped  with  a 
three-feathers  mint  mark.  Its  main  purpose  was  to  handle  the  locally 
mined  supplies  of  silver,  during  a  decade  when  the  London  mint  was 
intensively  occupied  coining  vast  amounts  of  silver  brought,  directly 
and  officially,  from  Spain. 

Throughout  the  sixteenth  century  and  the  first  third  of  the 
seventeenth  a  considerable  proportion  of  the  net  bullion  supplies 
coming  to  the  royal  mints  had  come  directly,  by  way  of  trade,  plunder 
or  piracy,  from  the  New  World,  despite  all  the  efforts  of  the  Spanish 
authorities  to  limit  such  leakages.  A  new  situation  developed  in  the 
early  part  of  the  reign  of  Charles  I  (1625-40)  whereby  vast  amounts  of 
bullion  came  directly  from  Spain  to  the  Tower  mint  with  the  full 
blessing  of  the  Spanish  authorities.  It  is  useful  to  examine  these 
fluctuations  in  the  flow  of  specie  in  relation  to  changes  in  the  mint 
prices  of  gold  and  silver  during  the  first  thirty  years  or  so  of  the 
seventeenth  century.  The  gold/silver  ratio  which,  as  we  have  seen,  had 
overvalued  silver  in  1601,  was  responsible  for  a  huge  influx  of  £1.5 
million  of  silver  to  the  London  mint  in  the  decade  to  1611.  This  inflow 
was  abruptly  halted  in  that  year,  however,  when  the  ratio  was  altered 
again,  this  time  by  too  much  of  a  margin  the  other  way,  favouring  gold 
and  penalizing  silver.  The  result  was  another  even  longer-lasting 
distortion  in  mint  input  and  output.  From  1611  to  1630  mint  activity 
was  mainly  confined  to  gold,  and  the  minting  of  silver  coinage 
practically  ceased  to  be  of  any  importance.  Consequently,  by  1630  the 
general  state  of  the  silver  in  circulation  had  once  more  grossly 
deteriorated  to  an  unacceptable  level  -  not  this  time  by  conscious 
debasement,  but  simply  through  a  combination  of  natural  wear  and 



tear  and  official  neglect.  Fortunately,  by  this  time  also  the  vast  increase 
in  world  supplies  of  silver  had  so  reduced  its  price  as  to  make  the 
unrealistically  low  mint  price  fixed  in  1611  again  attractive  enough  for 
merchants  to  bring  in  new  supplies  of  silver,  and  profitable  enough  for 
the  Crown  to  resume  minting.  Against  this  favourable  background  a 
new  decade  of  feverishly  sustained  activity  at  the  Royal  Mint  was 
ushered  in  particularly  as  a  result  of  improved  diplomatic  relations 
between  England  and  Spain.  This  new  situation  was  signalled  by  the 
Cottington  Treaty  of  1630,  so  called  after  the  English  ambassador  who 
negotiated  not  only  the  cessation  of  hostilities  but  also  the  detailed 
financial  agreements  which  were  to  have  a  profound  influence  on 
subsequent  monetary  developments  in  Britain. 

One  of  the  largest  and  most  persistent  of  the  many  drains  on  Spain's 
vast  accumulation  of  gold  and  silver  was  the  need  to  pay  for  her  armed 
forces  abroad  and  to  subsidize  her  allies  in  various  parts  of  Europe,  as 
well  as  to  support  the  Spanish  administration  in  those  parts  of  the  Low 
Countries  which  were  still  under  her  control.  In  addition  to  the  growing 
risks  from  piracy,  the  recurrent  wars  with  England  and  Holland  ruled 
out  the  possibility  of  sending  supplies  through  the  English  Channel. 
The  Spanish  government  had  therefore  come  to  a  long-standing 
arrangement  with  the  bankers  of  Genoa  who  assumed  responsibility  for 
transferring  the  specie  to  Flanders  and  other  parts  of  northern  Europe 
as  required.  The  restoration  of  peace  with  England  in  1630  not  only 
removed  the  direct  threat  of  the  English  navy  but  had  the  double 
blessing  of  enlisting  that  navy  as  a  much-needed  source  of  protection 
for  the  Spanish  convoys  to  the  Low  Countries  from  the  constant 
harassment  of  the  Dutch  navy  (which  hesitated  to  offend  England)  and 
from  that  of  the  Turkish,  Barbary  and  other  pirates  who  roamed  the 
western  Atlantic  and  the  English  Channel  as  well  as  the  Mediterranean. 

The  Cottington  Treaty  thus  opened  a  cheaper,  better  and  more  direct 
route  to  the  Low  Countries.  Armies  and  administrators  naturally 
enough  needed  ready  money  rather  than  bullion,  and  this  urgent 
requirement  was  also  neatly  supplied  by  a  special  provision  of  the 
treaty.  Henceforth  all  the  money  required  to  be  sent  from  Spain  to 
Flanders  was  first  to  be  sent  to  London  in  English  ships  (for  added 
security).  Furthermore,  at  least  one-third  of  the  bullion  was  to  be 
coined  at  the  Tower  mint  while  the  remainder  was  available  either  to  be 
subsequently  sent  on  to  Flanders  or  for  use  in  buying  supplies  by  means 
of  bills  of  exchange  drawn  upon  Antwerp.  The  Spanish  treaty 
confirmed  Charles's  resolve  to  strengthen  the  navy  by  bringing  the  total 
of  seaworthy  ships  up  to  eighty,  and  for  this  purpose  he  resorted  to  the 
hated  'ship  money'  taxes,  which  in  1634  came  to  £104,252  and  in  1635 



to  £218,500  (Dietz  1964,  275).  Although  discussion  of  the  wider 
financial  and  constitutional  effects  of  ship  money  is  deferred  until  the 
following  chapter,  it  is  relevant  here  to  mention  these  heavy  costs  as 
possibly  excusing  Charles's  determination  to  extract  every  penny  of 
profit  from  coining  the  Spanish  silver  while  at  the  same  time 
overlooking  the  glaringly  obvious  need  to  replace  the  existing 
circulation.  Nevertheless,  on  the  positive  side,  the  agreement  with  Spain 
meant  that  the  Royal  Mint  was  now  assured  of  a  vast  and  profitable 
supply  of  silver.  A  huge  total  of  something  between  eight  and  ten 
million  pounds'  worth  of  silver  was  coined  by  the  Royal  Mint  between 
1630  and  1640  which  'was  nearly  twice  the  amount  coined  during  the 
whole  of  Elizabeth's  reign  including  the  recoinage'  (Feavearyear  1963, 

What  was  good  for  the  king  and  his  mint  was  also  good  for  the  coin- 
cullers,  though  not,  as  it  happened,  for  the  currency.  If  the  success  of  the 
Elizabethan  recoinage  depended  upon  reversing  Gresham's  Law  by  first 
devaluing  and  then  quickly  taking  in  the  great  bulk  of  the  debased 
currency,  the  failure  of  Charles's  policy  followed  from  simply  adding  the 
good,  new  coinage  to  the  deplorably  bad  existing  circulation.  Rarely 
has  Gresham's  Law  operated  to  greater  effect,  for  no  sooner  were  the 
new  coins  issued  than  they  disappeared  via  the  thriving  goldsmiths  (and 
the  many  agents  whom  they  employed  at  a  payment  of  2-3  per  cent  of 
the  net  proceeds).  The  new  coins  were  either  melted  down  or  exported 
with  little  delay.  Notorious  among  such  lawbreaking  goldsmiths  was 
Thomas  Violet,  who  received  a  royal  pardon  in  1634  for  his 
misdemeanours  in  return  for  informing  on  his  fellow  criminals,  a  dozen 
of  whom  were  brought  to  justice.  Despite  all  the  efforts  to  prevent 
melting  or  export,  most  of  the  Spanish  silver  had  disappeared  from  the 
country  by  the  middle  of  the  seventeenth  century. 

The  so-called  price  revolution  of 1540-1640 

It  is  now  time  to  turn  to  see  how  these  tidal  flows  of  finance  affected  the 
history  of  prices  in  general  during  the  age  of  the  Tudors  and  early 
Stuarts.  Whereas  the  financial  effects  of  dissolution  and  even  of 
debasement  had  generally  been  relatively  neglected  by  economic 
historians  until  the  1970s,  in  contrast  the  history  of  prices  in  the 
sixteenth  century  has  exerted  a  magnetic  effect  on  contemporary 
writers  and  historians  ever  since.  While  the  fascination  which  the 
subject  has  held  for  investigators  has  considerably  increased  our 
knowledge  of  the  prices  of  various  commodities  and  the  wages  of 
various  groups  of  workers  in  different  regions,  the  key  matter  as  to  what 



were  the  causes  of  the  inflation  remains  very  much  a  subject  of  lively 
dispute.  One  would  expect  modern  monetarists  automatically  to 
explain  inflation  as  being  clearly  the  result  of  a  single  simple  cause  -  the 
expansion  of  the  money  supply  relative  to  any  increase  in  the  output  of 
final  goods  and  services.  Conversely  modern  Keynesians  would  be 
expected  to  look  for  a  variety  of  non-monetary,  as  well  as  monetary, 
causes.  The  surprising  truth  of  the  matter,  however,  is  that  practically 
all  writers  up  to  the  1970s  including  especially  Keynes  himself,  have 
adopted  the  simple  classical  approach  of  giving  by  far  the  greatest 
emphasis  to  monetary  factors,  whereas  since  about  1970,  during  the 
heyday  of  modern  monetarism  the  supremacy  of  monetary  factors  as 
the  main  inflationary  factor  has  been  increasingly  called  into  question. 

Before  trying  to  weigh  up  the  relative  roles  of  money  supply  and 
demand  as  compared  with  other  changes  it  is  as  well  to  remind 
ourselves  that  to  modern  readers  the  inflation  of  the  sixteenth  and 
seventeenth  centuries  was  a  piffling  affair  and  seemingly  hardly  worth 
all  the  ink  that  has  been  spilt  upon  it.  Yet  during  those  centuries  there 
was  a  general  belief  that,  temporary  disturbances  apart,  there  should  be 
a  just  level  for  wages  and  prices,  determined  by  equity  and  tradition, 
rather  than  by  mere  market  equilibrium.  Furthermore  the  new  inflation 
followed  a  long  period  when  most  prices  had  been  either  stable  or 
gently  falling,  so  that  when  the  new  long  series  of  unusually  sharp  price 
rises  did  not  fall  back  to  their  traditional  level,  then  contemporary 
opinion  was  troubled  by  events  that  were  both  strange  and  profoundly 
unsettling.  Thus,  although  we  today  might  gladly  welcome  as  almost 
non-inflationary  a  rate  of  price  increases  which  generations  of 
economic  historians  have  strangely  persisted  in  calling  'revolutionary', 
yet  on  balance  with  deference  to  the  views  and  reactions  of  people 
living  at  the  time  and,  despite  the  obvious  exaggeration,  the  use  of  the 
conventional  term  'the  price  revolution'  may  still  be  accepted.  What, 
then,  were  its  causes  and  consequences? 

Perhaps  the  first  point  which  needs  to  be  stressed  in  these 
monetaristic  days  is  that  no  one  simple,  single  cause  can  possibly  be 
sufficient  in  itself  to  explain  the  selective,  sustained,  widespread  and 
regionally  differentiated  rise  in  prices  throughout  Europe  which  lasted 
for  more  than  a  century.  In  other  words  the  influx  of  precious  metals 
from  the  New  World,  though  without  doubt  a  vitally  important 
ingredient,  cannot  be  taken  as  being  so  obviously  and  overwhelmingly 
responsible  for  the  nature  and  extent  of  the  rise  in  price  levels  that  all 
the  other  influences  can  be  ignored.  However,  so  powerful  was 
Professor  Hamilton's  explanation  of  European  inflation  being  almost 
exclusively  the  result  of  the  influx  of  American  treasure  that  no  less  an 



economist  than  Keynes  himself  adopted  his  simplistic,  monetarist 
stance  (E.  J.  Hamilton  1934  and  Keynes  1930,  II,  152-63).  His  powerful 
advocacy  diverted  the  main  body  of  the  subsequent  generation  of 
economic  historians  away  from  giving  sufficient  attention  to  other 
causative  factors,  and  this  despite  the  much  more  balanced  view, 
carefully  integrating  monetary  and  non-monetary  causes  given  by 
Bishop  Cunningham  at  least  as  early  as  1912,  but  subsequently  brushed 
aside  by  the  Hamilton-Keynes  tide.  In  accepting  Professor  Hamilton's 
ideas,  Keynes  laid  especial  emphasis  on  his  theory  of  'profit  inflation'  as 
being  the  chief  cause  not  only  of  economic  growth  but  also  even  of 
political  power.  The  fact  that  the  rise  in  money  wages  lagged  behind 
prices  for  decades  gave  entrepreneurs  plenty  of  capital  to  invest 
wherever  the  incentives  seemed  greatest.  'Indeed  the  booty  brought 
back  by  Drake  in  the  Golden  Hind  (variously  estimated  at  between 
£300,000  and  £1,500,000)  'may  fairly  be  considered  the  fountain  and 
origin  of  British  Foreign  Investment',  claimed  Keynes,  who  emphasized 
'the  extraordinary  correspondence  between  the  periods  of  Profit 
Inflation  and  of  Profit  Deflation  respectively  with  those  of  national  rise 
and  decline  ...  In  the  year  of  the  Armada  (1588),  Philip's  Profit 
Inflation  was  just  concluded,  Elizabeth's  had  just  begun'  (1930,  II, 
152-63).  Keynes  took  his  contemporary  Cambridge  historians  to  task 
for  making  no  mention  of  these  powerful  economic  factors  which  had 
made  possible  the  greatness  of  the  Elizabethan  age.  No  self-proclaimed 
monetarist,  not  even  Milton  Friedman  himself,  could  make  greater 
claims  as  to  the  power  of  money,  even  though  the  stimulatory  effects  of 
the  increased  money  supplies  described  by  Keynes  were  critically 
dependent  on  very  lagged  and  weak  responses  in  the  labour  market. 
With  the  Keynes  of  the  Treatise  (1930),  money  is  power:  with  the 
Keynes  of  the  General  Theory  (1936)  money  is  powerless  -  a  remarkable 
change  to  which  we  will  return  in  a  later  chapter. 

Professor  J.  U.  Nef  of  Chicago,  a  contemporary  of  Keynes,  while 
admitting  that  'the  inflow  of  treasure  from  America  helped  to  keep 
down  the  costs  of  labour  and  the  land  needed  for  mining  and 
manufacturing',  nevertheless  warns  us  against  the  tempting  assumption 
that  the  long  period  of  rising  prices  was  of  compelling  importance  for 
the  rise  of  industrialism'  (1954, 1,  133).  Whereas  Keynes  referred  mainly 
to  the  stimulatory  effects  of  the  influx  of  precious  metals  on  England's 
overseas  trade,  Professor  Nef  looks  rather  at  internal  industrial 
developments,  and  makes  the  telling  point  that  wages  could  not  have 
been  depressed  so  far  or  so  long  as  Wiebe,  Hamilton  and  Keynes  had 
supposed,  otherwise  the  home  demand  for  the  products  of  the  new 
industries  of  coal,  glass,  soap,  paper,  salt,  etc.  would  have  been 



depressed  rather  than  expanded.  He  also  showed  that  the  timing  of 
these  industrial  developments  does  not  fit  very  closely  to  the  periods 
when  overseas  silver  came  in  abundance  to  England  in  the  second  half 
of  the  sixteenth  century,  but  rather  had  already  been  stimulated  by  the 
earlier  periods  of  monetary  debasement.  It  is  no  mere  coincidence  that 
the  rate  of  inflation  rose  to  its  peak  in  the  two  decades  following  the 
beginning  of  the  great  debasement  in  1542  and  that  the  resulting  gap 
between  prices  and  wages  widened.  The  resultant  increase  in  labour 
unrest  led  in  time  to  a  national  codification  of  local  labour  customs  in 
the  form  of  Elizabeth's  Statute  of  Artificers  of  1561.  Its  attempts  to  fix 
wages,  to  force  'vagabonds  and  vagrants'  into  the  agricultural  labour 
force  and  its  lengthening  of  the  standard  period  of  apprenticeship  to 
seven  years  may  in  retrospect  be  seen  as  obvious  attempts  to  return  to  a 
traditional  stability  in  industrial  relations  which  had  been  deeply 
disturbed  by  accelerating  inflation. 

Some  recent  writers  on  the  other  hand,  while  drawing  overdue 
attention  to  non-monetary  causes,  are  again  in  danger  of  going  to  the 
other  extreme  in  dismissing,  ignoring  or  gravely  underestimating  the 
vital  role  played  by  the  influx  of  gold  and  silver.  Thus  Professor  Joyce 
Youings,  in  her  stimulating  and  highly  readable  history  of  Sixteenth 
Century  England,  devotes  a  whole  chapter  to  the  twin  'Inflation  of 
Population  and  Prices',  in  which  she  carefully  and  painstakingly 
underlines  the  inflationary  force  of  the  growth  of  population.  However, 
apart  from  a  few  scattered  references  to  debasement,  she  ignores  what 
must  surely  be  at  least  as  important  a  cause,  namely  the  increased 
money  supply.  Similarly,  while  one  must  agree  with  her  analysis  of  the 
main  consequences  of  the  inflation,  one  can  hardly  agree  to  the  almost 
complete  neglect  of  the  money  supply.  'The  growth  of  population,' 
according  to  Youings,  'itself  the  main  cause  of  the  increase  in  prices, 
ensured  that  those  who  suffered  most  were  those  most  dependent  on  the 
earnings  of  wages'  (1984,  304). 

Why  did  the  increase  in  population  turn  out  to  be  so  inflationary  that 
some  writers,  like  Professosr  Postan,  Youings,  Brenner  and  Maynard 
tend,  in  one  form  or  another,  to  give  it  pride  of  place?  Plagues  apart,  the 
increase  in  population  was  fairly  steady  from  its  low  point  of  little  more 
than  two  million  in  1450  to  about  four  million  by  1600.  If  the  increase 
in  population  had  led  to  a  commensurate  increase  in  output,  its  effect 
on  prices  would  have  been  neutral;  if  it  had  been  accompanied  by  a 
general  increase  in  productivity,  the  results  would  have  been  positive 
and  would  therefore  have  moderated  the  inflationary  pressures  coming 
from  other  directions.  In  fact  there  were  a  number  of  powerful  reasons 
why  the  increased  output  -  especially  in  the  key  matter  of  foodstuffs  - 



increased  less  than  proportionately  with  population.  First  the 
distribution  of  the  population  changed,  with  a  pronounced  drift  to  the 
towns,  especially  London.  The  greater  occupational  specialization 
which  accompanied  this  drift  reduced  the  degree  to  which  people  grew 
their  own  foodstuffs  and  made  them  more  dependent  on  markets  and 
retail  outlets.  Professor  F.  J.  Fisher,  in  a  path-breaking  article  on  'The 
Development  of  the  London  Food  Market,  1540-1640',  shows  how 

By  the  early  seventeenth  century  there  was  a  general  feeling  that  the  city's 
appetite  was  developing  more  quickly  than  the  country's  ability  to  satisfy  it 
.  .  .  The  high  profiles  of  landlords  were  obtained  in  part  by  pinching  the 
bellies  of  the  local  poor.  The  theory  that  the  city  was  too  large  became 
generally  accepted,  partly  because  of  this  difficulty  of  obtaining  food,  and  it 
became  usual  to  fight  unduly  high  prices  by  limiting  the  city  population. 

Secondly,  profits  from  producing  wool,  especially  for  export,  led  to  a 
long  period  of  diversion  from  arable  to  pastoral  farming.  Traditional 
arable  farming  was  labour-intensive,  sheep  farming  was  not.  The 
unemployment  which  resulted  (for  agriculture  was  as  in  all  'less 
developed  countries'  predominant)  has  been  graphically  portrayed  in 
Sir  Thomas  More's  vivid  description  in  his  Utopia:  'Your  sheep,  that 
were  wont  to  be  so  meek  and  tame,  and  so  small  eaters,  now,  as  I  hear 
say,  be  become  so  great  devourers,  and  so  wild,  that  they  eat  up  and 
swallow  down  the  very  men  themselves'  (1516,  Book  I).  Thirdly,  then, 
unemployment,  caused  not  only  by  the  enclosure  movement,  but  by  all 
the  other  many  trials  of  those  ages  such  as  plagues,  external  wars  and 
civil  wars,  was  a  powerful  factor  which  reduced  the  actual  supplies  of 
goods,  and  especially  of  foodstuffs,  below  the  potential  suggested  by 
the  substantial  increase  in  hands.  Evidence  of  unemployment  abounds 
(in  the  form  of  complaints  regarding  vagrants  and  vagabonds)  from  the 
days  of  the  dissolution  of  the  monasteries,  which  made  the  problem 
more  obvious,  up  to  1601  when  the  Elizabethan  Poor  Law  was  enacted 
to  try  to  set  a  national  pattern  for  parishes  to  copy  in  dealing  with  the 
problem.  Undoubtedly  therefore  population  pressure  played  a 
significant  part  in  helping  along  the  rise  in  prices,  especially  of 
foodstuffs,  during  the  so-called  'Price  Revolution'. 

The  rise  in  population  thus  took  the  unfortunate  form  that  it  led  to  a 
greater  increase  in  final  demand  than  it  did  in  output  because  of  the 
lagged  and  insufficient  increase  in  the  productivity  of  agricultural 
labour.  This  feature  helps  to  show  how  the  increase  in  prices  started  to 
take  place  before  any  significant  increase  in  monetary  supplies  from  the 
New  World.  It  also  supports  Professor  Geoffrey  Maynard's  view  that 



the  prices  of  agricultural  products  rose  faster  than  those  of 
manufacturing  goods  because  of  the  lower  elasticity  of  supply  of 
agricultural  goods  (Maynard  1962).  It  was  these  same  pressures  of 
providing  for  the  requirements  of  an  increased  population  which 
enabled  landlords  to  continue  to  give  further  periodic  twists  to  the 
inflationary  spiral  throughout  the  period  1540-1640  by  their  insistence 
on  raising  the  rents  they  demanded  from  their  tenants  on  every  possible 
occasion  (Kerridge  1953,  16—34).  Yet,  when  all  allowance  is  made  for 
the  direct  and  indirect  effects  of  the  substantial  increase  in  population, 
the  cost-push  of  rising  rents  would  have  been  resisted  more  easily  if 
product  prices  had  not  also  been  pulled  up  by  an  inflated  monetary 
demand.  The  excellent  advice  of  Dr  Outhwaite,  given  in  his  brilliant 
summary  of  this  highly  controversial  subject  should  be  borne  in  mind: 
'We  must  avoid  making  population  pressure  do  all  the  work  which  was 
formerly  undertaken  by  Spanish  treasure'  (1982,  44).  On  balance  we 
might  say  that  the  size  and  persistence  of  the  rise  in  population 
provided  an  inclined  plane  upon  which  the  other  inflationary  causes, 
both  monetary  and  non-monetary,  exerted  all  the  more  effectively  their 
own  particular  price-raising  influences. 

The  rise  in  rents  became  a  matter  of  repeated,  vociferous  protest 
because  it  affected  an  important  sector  of  society.  It  provides  us  with  a 
good  example  of  how  people  were  mainly  concerned  about  increases  in 
the  price  of  a  single  commodity  or  at  most  in  the  prices  of  a  narrow 
range  of  goods  or  services.  Despite  the  many  valuable  studies  which 
have  been  made  of  particular  prices,  such  as  those  for  grain,  or  oxen,  or 
for  the  wages  of  agricultural  or  building  labourers,  they  inevitably 
suffer  from  so  many  limitations  that  great  care  must  be  used  in  making 
temporal  or  spatial  generalizations  based  upon  them.  Wide  differences 
in  regional  and  international  'baskets  of  goods',  in  exchange  rates,  in 
the  extent  to  which  people  could  produce  goods  for  themselves,  or  were 
allowed  benefits  or  perquisites  in  kind  -  these  and  other  similar 
qualifications  would  seriously  reduce  the  value  of  attempts  to  construct 
any  wide-ranging  index  of  prices,  particularly  when  the  appropriate 
weights  to  be  given  to  its  composite  items  are  bound  to  be  largely  a 
matter  of  guesswork  and  during  a  period  when  fundamental  changes 
were  taking  place  in  trade  and  expenditure  patterns.  Thus,  although  the 
very  concept  of  a  'general  index  of  Tudor  prices'  would  have  made  no 
sense  to  contemporaries  and  probably  remains  impracticable  for 
modern  researchers,  nevertheless  there  was  ample  evidence  of  a  growing 
interest  among  leading  members  of  society  in  the  sixteenth  and 
seventeenth  centuries  concerning  the  causes  and  effects  of  changes  in 
the  general  level  of  prices.  The  strange  phenomenon  of  prolonged  if 



moderate  inflation,  by  devaluing  everybody's  money,  had  kindled  a  new 
awareness  of  the  related  economic  problems  of  the  rate  of  interest,  of 
the  quantity  theory  of  money  and  of  the  balance  of  payments. 

Although  it  would  be  premature  to  describe  the  numerous,  intense 
views  which  were  being  promulgated  and  published  on  these  matters  as 
being  worthy  of  being  called  economic  theories,  nevertheless  the 
protagonists  were  busily  producing  guidelines  which  they  hoped  would 
be  adopted  as  official  policy.  In  a  sense  these  guidelines  were  exercises  in 
applied  political  economy.  In  the  course  of  the  following  century  or  so 
all  this  theorizing  in  bullionism  and  the  balance  of  payments,  on  the 
relationship  between  the  quantity  of  money,  the  level  of  prices  and  the 
rate  of  interest,  on  insurance  and  on  taxation,  developed  via  the  rather 
narrow  quantitatively  biased  study  of  'Political  Arithmetic'  into  the 
more  general  discipline  of  'Political  Economy'.  But  first  the  old 
medieval  attitudes  of  mind  and  methods  of  computation  had  to  be 
swept  aside  before  the  newer  more  commercial  and  capitalistic  views 
could  prevail. 

Usury:  a  just  price  for  money 

Powerfully  mixing  his  metaphors,  Professor  Tawney  in  his  stimulating 
analysis  of  Religion  and  the  Rise  of  Capitalism,  showed  how  'the 
revolution  in  prices,  gradual  for  the  first  third  of  the  century,  but  after 
1540  a  mill-race,  injected  a  virus  of  hitherto  unsuspected  potency  into 
commerce,  industry  and  agriculture,  at  once  a  stimulus  to  feverish 
enterprise  and  an  acid  dissolving  all  customary  relationships'  (1926, 
142).  One  of  the  most  important  spurs  to  commercial  activities  of  all 
sorts  was  the  gradual  removal  of  the  age-old  prohibition  against  the 
payment  of  interest,  a  matter  which  had  been  debated  throughout 
Europe  for  very  many  decades  with  little  or  no  result,  but  which  finally 
began  to  show  such  substantial  changes  in  attitudes  in  the  mid- 
sixteenth  century  that  the  law  itself  had  belatedly  to  take  note  of  them. 
Aristotle's  simple  but  powerful  belief  that  'money  was  barren'  and 
therefore  that  interest  was  unjust,  was  repeated  in  various  forms  both  in 
the  Old  and  in  the  New  Testament  (though  the  parable  of  the  talents 
provided  for  some  a  debatable  escape  clause).  In  any  case,  from  ancient 
times  right  through  to  early  modern  Britain,  usury  was  frowned  upon 
both  by  the  Church  and  by  the  state,  which  quarrelled  regarding  the 
boundaries  between  their  respective  areas  of  control,  all  the  more 
vigorously  because  of  the  money  involved. 

On  the  basis  of  'an  eye  for  an  eye'  the  most  common  and  appropriate 
punishment  for  greedy  creditors  was  the  extraction  of  as  large  a  fine  as 



possible  -  a  great  temptation  to  which  both  Church  and  state  frequently 
yielded.  Generally  speaking  however,  provided  certain  niceties  were 
observed,  the  law,  whether  canon  or  state  law,  turned  a  blind  eye  to  the 
giving  and  taking  of  interest,  except  at  times  of  exceptional  religious  or 
political  zeal,  or  when  the  debtors  were  influential  enough  to  attract  the 
attention  of  the  political  or  religious  authorities  to  particularly  harsh 
instances  of  extortion.  While  the  Schoolmen  argued,  kings  and  popes, 
monasteries  and  republics,  merchants  and  moneylenders,  Jews  and 
Gentiles,  Italians,  Spaniards,  Germans,  French,  Dutch  and  English  -  all 
regularly  borrowed,  often  paying  high  rates  for  the  privilege,  despite 
what  the  laws  might  say.  It  was  partly  because  it  had  become  so  easy  to 
find  ways  around  the  prohibitions  that,  during  the  later  Middle  Ages, 
these  laws  had  actually  been  strengthened,  so  heightening  the  intensity 
of  the  debate  as  to  what  should  or  should  not  be  permitted. 

The  word  'usury'  throughout  the  Middle  Ages  had  been  synonymous 
with  almost  any  sort  of  economic  exploitation  and  not  simply  the 
charging  of  money  for  a  loan.  The  actions  of  those  who  charged 
excessive  prices  for  goods  simply  because  they  had  become  scarcer 
naturally  or  by  'engrossing',  any  form  of  monopoly  or  foreclosure,  all 
were  blackened  by  being  called  'usury'.  In  a  society  where  small 
craftsmen  and  peasants  were  far  commoner  than  wage-earners  and 
where  free  competition  was  the  exception  rather  than  the  rule,  the 
common  people  were  easy  prey  to  economic  exploitation.  It  was  their 
vulnerability  to  usury  that,  according  to  Wycliffe's  sermon  'On  the 
Seven  Deadly  Sins'  made  men  'curse  and  hate  it  more  than  any  other 
sin'.  In  other  words  the  question  of  the  removal  of  usury  was  not  simply 
a  matter  of  pleasing  the  rising  commercial  interests  of  the  gentry,  the 
lawyers  and  the  merchants:  it  was  also  a  matter  of  protecting  the 
everyday  livelihood  of  the  ordinary  village  craftsmen  and  small  farmers, 
whose  vulnerability  was  just  as  keenly  felt  in  the  sixteenth  century  as 
when  Wycliffe  preached,  in  the  fourteenth.  This  fear  of  exposing  the 
poor  completely  to  the  unscrupulous  trader  goes  a  long  way  towards 
explaining  why  such  a  seemingly  completely  anachronistic  system  as 
the  maintenance  of  the  ban  on  usury  took  such  an  incredibly  long  time 
to  remove  -  and  then  only  bit  by  bit.  In  fact  it  took  no  less  than  300 
years  to  remove  completely  the  legal  ban  on  usury  in  Britain.  Even  then 
total  laissez-faire  in  money  existed  for  only  the  short  period  of  the  last 
forty-five  years  of  the  nineteenth  century.  In  the  perspective  of  history  - 
even  modern  history  —  total  freedom  for  money  is  very  much  the 
exception  and  some  more  or  less  strict  form  of  control  has  almost 
always  been  the  general  rule. 

The  increasing  quantity  of  money  and  credit  and  the  even  stronger 



growth  in  lending  money  for  commercial  rather  than  simply  for 
charitable  purposes  made  the  medieval  attitudes  to  usury  less  and  less 
tenable  in  the  course  of  the  sixteenth  century  when  opinion  and 
practice  in  England  began  to  catch  up  with  those  on  the  Continent.  By 
far  the  most  modern  in  their  approach  to  financial  operations  were  the 
Lombards,  or  'Long-beards',  who  operated  not  only  in  northern  Italy 
but  had  their  agents  in  all  the  other  important  economic  centres  of 
Europe,  especially  in  the  'fair'  towns  of  southern  France  and  the 
Netherlands.  The  prosperity  of  these  areas  and  the  ease  with  which  they 
overcame  economic  and  social  disasters  which  devasted  other  regions 
acted  as  an  example  to  the  rest  of  Europe.  Since  Milan,  Genoa,  Venice, 
Florence  and  Sienna  were  virtually  independent  city-states,  a  large 
proportion  of  their  business  which  elsewhere  would  be  considered 
regional  or  local  could  legitimately  be  taken  as  being  'international'. 
This  was  significant  because  by  far  the  most  common  and  widespread 
method  of  avoiding  the  ban  on  interest  was  to  disguise  credit 
transactions  as  dealings  in  foreign  exchange.  Thus,  under  the  very  nose 
of  the  Vatican,  the  Lombards  developed  a  surprisingly  modern  money 
market  successfully  avoiding  excommunications  or  fines  which  were  the 
Church's  usual  punishments  for  usury.  Indeed,  the  Italian  banking 
houses  regularly  carried  out  such  foreign  exchange  transactions  on 
behalf  of  the  papacy  itself.  Their  system,  based  largely  but  not 
exclusively  on  the  use  of  'international'  bills  of  exchange,  became  the 
basis  of  the  modern  forms  of  banking  which  were  spreading  over  much 
of  Europe  including  Antwerp,  Amsterdam  and  London. 

Precept  followed  practice  so  that  various  schools  of  thought  emerged 
as  academics  and  theologians  began  to  find  ways  of  modifying  the 
traditional  blanket  prohibition  of  all  kinds  of  usury.  The  first  logical 
step  in  the  process  of  changing  accepted  views  was  to  allow  claims  to 
payment  wherever  delays  occurred  in  the  repayment  of  the  principal  of 
a  loan.  Such  a  payment  by  definition  could  arise  only  if  the  originally 
agreed  maturity  of  the  loan  had  expired.  Such  forms  of  payment 
became  commonly  acceptable  and  designated  as  interest  ('id  quod 
interest')  and  so  escaped  being  stigmatized  as  usury.  A  second  and  more 
important  step  forward  was  to  claim  that  periodic  payments  made 
during  the  course  of  a  long-term  loan  were  also  legitimate.  This  first 
became  regular  practice  when  the  Italian  city-states  began  raising  loans 
(some  of  them  'forced'  instead  of  taxes)  from  their  citizens.  The 
arguments  as  to  the  legitimacy  of  such  payments  divided  the 
Augustinian  theologians,  who  were  against  them,  from  the  Franciscans 
who  were  in  favour  of  them.  Already  in  1403  the  celebrated  lawyer  and 
theologian  Lorenzo  di  Antonio  Ridolfi  successfully  won  his  case  on 



behalf  not  only  of  his  creditors  but  also  of  the  state  debtor,  the  Republic 
of  Florence,  who  did  not  want  this  source  of  funds  from  its  rich  citizens 
to  be  denied  them.  'In  such  public  lending  then,  interest  was  not  due 
merely  because  of  delay'  (Gordon  1975,  197). 

The  exemptions  thus  granted  to  governments  and  their  creditors 
were  gradually  extended  to  include  commercial  contracts  between 
merchants  where  each  was  obviously  so  well  able  to  look  after  himself 
that  no  possible  stigma  of  extortion  was  implied.  Prominent  among  the 
major  creditors  of  governments  were  of  course  just  such  merchants, 
who  could,  in  the  prosperous  regions  around  them,  always  find 
profitable  avenues  for  their  surplus  funds,  usually  at  better  rates  or  with 
less  onerous  conditions  than  when  they  were  forced,  cajoled  or  induced 
to  lend  to  the  state.  They  felt  very  keenly  the  sacrifice  involved  when 
they  lost  the  opportunities  of  making  profitable  use  of  their  own  funds 
whenever  they  lent  them  to  the  state.  Furthermore  since  states  were 
tending  to  become  bigger  and  bigger  borrowers,  this  problem  of  lost, 
more  profitable  alternative  lending  tended  to  grow  ever  larger.  Such 
creditors  began  to  demand,  as  an  openly  acknowledged  right,  rather 
than  simply  as  a  disguised  privilege,  an  equivalent  return  from  their 
debtors  in  the  form  of  interest.  Such  payments  were  deemed  'lucrum 
cessans',  that  is  payments  for  the  cessation  or  loss  of  profits.  As 
Professor  Gordon  and  others  have  pointed  out,  this  is  the  same  thing  as 
the  modern  concept  of  opportunity  cost  (Gordon  1975,  195).  In  this 
way,  payments  for  delay,  for  compensation  for  loss  of  profit  and  for  a 
range  of  other  similar  losses  became  semi-legalized  and  accepted  even 
by  orthodox  Catholic  theologians  and  lawyers,  and  consequently 
excused  as  'interest'  from  the  punishments  still  meted  out  for  those 
antisocial  practices  which  could  still  be  construed  as  usurious. 
However,  the  definition  of  usury  was  shrinking  as  that  of  acceptable 
interest  was  growing:  the  financial  exception  was  gradually  becoming 
the  rule. 

The  Reformation  may  have  hastened  the  spread  of  these  changes 
though,  as  we  have  seen,  it  can  hardly  be  said  to  have  caused  them. 
Luther,  Calvin  and  Zwingli,  though  loud  in  their  denunciations  of 
traditional  forms  of  usury,  nevertheless  by  questioning  the  very 
foundations  of  the  beliefs  of  the  established  Church,  raised  questions 
among  the  public  which  they  themselves  failed  to  answer  with  clarity,  at 
a  time  when  others  were  keen  to  resolve  their  doubts.  Ironically,  Henry 
VIII  first  powerfully  opposed  the  Reformation  by  publishing  in  1521  his 
'Defence  of  the  Seven  Sacraments',  for  which  Pope  Clement  VII 
conferred  on  him  the  title  'Fidei  Defensor'  or  'Defender  of  the  Faith', 
which  has  subsequently  appeared  on  British  coinage  for  nearly  500 



years,  either  as  'Fid.Def.',  or  simply  as  'F.D.'.  While  it  was  more 
important  matters  of  state,  such  as  royal  marriages  and  the  sovereignty 
of  the  Crown  over  the  Church,  confirmed  by  the  Act  of  Supremacy  of 
1534,  that  caused  the  rift  with  Rome,  nevertheless  its  relevance  to  usury 
follows  from  the  fact  that  once  this  break  had  been  accomplished,  there 
was  no  longer  any  overriding  ecclesiastical  impediment  to  the  long 
overdue  clarification  of  the  legalization  of  the  payment  of  interest. 
Thus,  it  so  happened  that  the  first  Act  to  legalize  the  payment  of 
interest  in  Britain  was  passed  in  1545,  when  Henry  was  in  the  middle  of 
his  programme  of  debasing  the  coinage.  Money  and  credit  were  equally 
capable  of  being  manipulated  by  the  monarch  without  undue 
parliamentary  or  ecclesiastical  opposition. 

The  statute  of  1545  is  therefore  of  paramount  importance  in  the 
history  of  usury  and  consequently  in  the  history  of  money  and  banking 
also.  Despite  strongly  upholding  the  traditional  condemnation  of  usury 
in  its  preamble,  it  is  the  first  official  instance  of  the  open  acceptance  of 
practices  which  though  they  had  already  become  indispensable  to 
England's  economic  life,  had  always  been  carried  out  under  a  cloud  of 
debilitating  suspicion.  As  well  as  paying  lip-service  to  the  old 
traditional  views  the  preamble  to  the  Act  gave  warnings  against 
methods  used  for  evading  usury,  in  particular  the  commonly  used 
device  of  fictitiously  selling  goods  at  a  given  price  and  buying  them 
back  at  a  higher  price.  This  device  need  not,  and  quite  often  did  not, 
involve  the  actual  transfer  of  goods,  but  was  simply  a  paper  agreement 
or  even  a  verbal  understanding.  By  openly  allowing  payment  for  credit, 
so  long  as  the  rate  charged  did  not  exceed  10  per  cent  per  annum,  most 
genuine  commercial  interest  transactions  were  now  allowable. 
Naturally  traditionalists  were  up  in  arms  and  managed  to  get  the  Act 
repealed  in  1552.  The  new  Act  attempted  to  restore  the  old  position, 
and  repeated  the  condemnation  of  usury  as  'a  vice  most  odious  and 
detestable,  as  in  dyvers  places  of  the  Hollie  Scripture  it  is  evident  to  be 
seen'.  This  Act  had  no  chance  of  long-term  acceptance,  though  it  did 
remain  on  the  Statute  Book  for  two  decades,  a  tribute  to  the  continuing 
strength  of  the  opposition.  Eventually  in  1571  the  regressive  Act  was  in 
its  turn  repealed  and  replaced  by  the  permissive  Act  of  1545,  with  the 
same  maximum  rate  of  10  per  cent,  though  this  latter  Act  specifically 
excepted  the  Orphans'  Fund  of  London  from  being  lent  out  at  interest, 
this  detail  again  illustrating  that  the  important  protective,  social  aspects 
of  usury  had  not  been  overlooked. 

An  ingenious  solution  to  the  problem  of  how  to  devise  a  scheme 
which  would  continue  to  give  protection  to  the  poor  and  yet  allow 
greater  freedom  for  commercial  lending  was  proposed  by  Francis  Bacon 



(1561-1626),  who  lived  through  these  changes.  In  his  essay  'Of  Usury' 
he  advocated  a  two-tier  rate  of  interest.  First  there  should  be  a  low 
maximum  rate  for  lending  the  small  amounts  of  money  normally 
required  by  the  poor.  For  this  social  purpose  the  rate,  Bacon  suggested, 
should  be  no  higher  than  5  per  cent.  However,  because  'it  is  certain  that 
the  greatest  part  of  trade  is  driven  by  young  merchants  upon  borrowing 
at  interest',  there  should  be  a  second,  higher,  maximum  rate  of  interest 
so  as  to  allow  full  rein  to  such  entrepreneurial  drive.  The  maximum 
commercial  rate,  claimed  Bacon,  should  be  set  at  9  per  cent.  However, 
there  was  to  be  no  free-for-all.  Only  registered  moneylenders  properly 
licensed  would  be  permitted  to  operate  at  these  higher  rates,  and  then 
only  in  London  and  a  number  of  other  main  cities.  Although  his  vision 
of  socially  and  regionally  differentiated  interest  rates  was  not 
implemented,  nevertheless  his  idea  that  attempts  should  be  made  to 
bring  down  the  maximum  level  found  considerable  support  in  the  early 
decades  of  the  seventeenth  century,  notably  from  Sir  Thomas 
Culpepper  who  published  his  'Tract  Against  the  High  Rate  of  Interest' 
in  1621.  He  'devoted  his  life  to  the  task  of  getting  Parliament  to  lower 
the  maximum  rate'  (Cunningham  1938,  II,  384).  As  the  result  of  such 
pressures  a  new,  lower  maximum  rate  of  8  per  cent  was  established  in 
the  legislation  of  1624,  which  in  deference  to  traditional  opinion  (but  by 
that  time  surely  seen  as  lip-service),  was  entitled  An  Act  Against 

Thereafter  the  way  ahead  was  clear  and  an  essential  series  of  steps 
had  been  taken  to  remove  the  worst  aspects  of  the  ban  on  interest, 
without  which  the  indigenous  developments  in  banking  which  were  to 
come  to  fruition  in  the  second  half  of  the  seventeenth  century  would 
have  been  thwarted.  Professor  Lipson  summarized  the  situation  thus: 
'The  use  of  borrowed  capital  on  a  considerable  scale  was  made  possible 
by  the  abandonment  of  the  medieval  attitude  towards  the  "damnable 
sin  of  usury."  The  legal  toleration  of  interest  marked  a  revolutionary 
change  in  public  opinion  and  gave  a  clear  indication  of  the  divorce  of 
ethics  from  economics  under  the  pressure  of  an  expanding  economic 
system'  (1956,  II,  xx-xxi).  Whereas  discussions  about  the  appropriate 
rate  of  interest  had  always  closely  involved  moral  factors  (and  in  a  sense 
still  do),  the  other  burning  contemporary  topic,  more  easily  divorced 
from  ethics,  but  certainly  not  from  politics,  was  the  relationship 
between  the  supply  of  money  and  the  level  of  prices. 

Bullionism  and  the  quantity  theory  of  money 

Because  variations  in  the  flow  of  precious  metals  played  such  an 



important  role  in  international  trade  and  the  foreign  exchanges,  it 
should  occasion  no  surprise  that  the  foremost  theoretical  developments 
of  the  period  came  to  be  known  in  England  by  the  term  'bullionism'. 
What  money  is  to  'monetarism',  so  bullion  was  to  bullionism,  its 
theoretical  great-grandparent.  The  bullionist  approach  to  economic 
thought  first  came  to  full  flower  in  the  age  of  the  Tudors  and  early 
Stuarts.  Subsequently  it  has  shown  itself  very  prominently  in  later 
centuries,  particularly  in  the  Bullion  Report  of  1810  and  the  equally 
famous  discussions  of  the  Currency  School  which  led  up  to  the  1844 
Bank  Charter  Act,  which  itself  provided  the  basic  constitution  for 
British  currency  until  1914,  and  briefly  again  for  the  six  years  from  1925 
to  1931.  The  narrower  view  of  money  as  being  based  on  the  precious 
metals  (whether  gold  or  silver  or  both),  stems  directly  from  the 
bullionist  doctrines  of  the  sixteenth  and  seventeenth  centuries,  and 
although  occasional  references  to  such  beliefs  can  be  traced  to  earlier 
times,  it  was  not  until  this  later  period,  when  a  veritable  spate  of 
publications  appeared  on  the  subject,  that  anything  worthy  of  being 
deemed  economic  doctrine  emerged,  and  even  then  was  subject  to  the 
conflicting  views  that  commonly  accompany  most  economic  theories 
when  these  are  closely  related  to  current  policies. 

Basically,  bullionism  was  the  belief  that  trade,  financial  and  fiscal 
policies  should  be  so  co-ordinated  as  to  attract  into  the  country  the 
largest  possible  supply  of  bullion,  and  conversely  to  minimize  those 
factors  which,  if  not  checked,  would  lead  to  a  drain  of  bullion  away 
from  the  country.  This  was  not  because  of  any  naive,  miserly  or 
particularly  misguided  adulation  of  the  precious  metals  themselves,  but 
because  in  the  circumstances  of  the  time,  an  adequate  supply  of  such 
metals  was  believed  to  be  absolutely  essential  for  a  number  of  powerful 
reasons.  Among  these  were  the  need  for  a  plentiful  supply  of  sound 
coinage,  rather  than  the  debased  coinage  resorted  to  when  bullion  was 
scarce;  the  need  to  prevent  a  fall  (or  a  low  valuation)  of  sterling  in  the 
foreign  exchanges;  the  need  to  give  profitable  employment  for  British 
capital  and  British  workmen,  rather  than  to  stimulate  foreign 
production  and  employment;  the  need  to  provide  a  ready  reserve  of 
precious  metals  so  as  to  make  it  unnecessary  for  the  monarch  to  have  to 
rely  on  an  illiquid,  impoverished  country  or  a  recalcitrant  Parliament 
for  the  special  taxes  required  for  defence  purposes,  and  so  on. 
Symptoms,  causes,  effects  and  irrelevancies  were  inevitably  mixed  up  in 
many  presentations  of  the  bullionist  case,  though  perhaps  the  extent  of 
the  confusion  and  irrelevancy  may  have  been  exaggerated  by  Adam 
Smith  and  still  more  by  a  number  of  other,  later  observers.  The 
fundamental  belief  was  simply  that  a  plentiful  supply  of  bullion  was 



believed  to  be  a  prerequisite  not  only  for  economic  growth  but  also,  to  a 
country  perilously  threatened  by  powerful  enemies,  for  economic  and 
political  independence.  Furthermore,  given  the  fact  that,  despite  all  the 
efforts  of  monarchs  and  merchants  to  find  any  worthwhile  amount  of 
gold  or  silver  within  Britain,  the  only  source  of  such  vitally  essential 
products  was  overseas,  either  by  the  dubious  occasional  means  of  war 
and  piracy  or  by  the  apparently  more  certain  and  continuous  means  of 
trade.  British  bullionists  therefore  concentrated  their  attention  on 
foreign  trade  and  the  foreign  exchanges.  Malynes,  Milles,  Mun  and  the 
whole  army  of  bullionist  pamphleteers  would  have  heartily  applauded 
von  Clausewitz's  conclusion  regarding  the  essential  similarity  of 
objectives  in  war  and  peace;  only  the  means  differed.  Unable  to  rely  on 
a  repetition  of  Drake's  successful  piracy,  the  bullionists  had  to  content 
themselves  with  favourable  balances  of  trade. 

Differences  between  contemporary  and  subsequent  definitions  of 
'bullionism'  and  'mercantilism'  loom  large  in  the  works  of  some 
historians  but  are  minimized  by  others.  The  differences  can  be  seen  as 
both  semantic  and  as  a  matter  of  substance.  Contemporary  English 
writers  favoured  the  term  'bullionism'  whereas  continental  writers 
preferred  to  refer  to  the  'commercial'  or  'mercantilist  system',  a 
nomenclature  adopted  by  Adam  Smith.  The  matter  of  substance  stems 
from  the  fact  that  bullionism  tended  to  be  given  a  narrow  meaning  as 
being  especially  concerned  with  international  flows  of  specie  resulting 
from  particular  trades,  whereas  mercantilism  took  a  wider,  more 
macro-economic  standpoint,  looking  at  the  flow  of  specie  resulting 
from  the  aggregate  balance  of  trade  and  payments.  Logically  there  were 
three  stages  in  the  supposed  transition  from  bullionism  to  mercantilism: 
first,  the  balance  of  individual  bargains  or  particular  trades;  secondly 
the  bilateral  balance  between  the  home  country  and  another;  and 
thirdly  the  aggregate  balance.  Professor  Viner  notes,  with  some  asperity 
as  well  as  surprise,  that  the  actual  chronological  development  of  the 
theory  of  international  trade  conspicuously  failed  to  follow  this  logical 
arrangement.  'In  some  of  the  modern  literature  on  mercantilism,'  he 
complained,  'there  is  to  be  found  an  exposition  of  the  evolution  of  the 
balance-of-trade  doctrine  in  terms  of  three  chronological  stages  .  .  . 
This  is  all  the  product  of  vivid  imagination'  (Viner  1937,  11).  Professor 
Viner  need  not  have  been  either  surprised  or  angered,  for  yet  again  this 
is  a  most  useful  illustration  of  how  in  the  imperfectly  linked 
development  of  economic  theory  and  practice,  particularly  where 
money  is  concerned,  the  logical  and  the  chronological  do  not  always 
march  in  step,  even  when  nevertheless,  they  may  be  heading  in  roughly 
the  same  direction. 



In  pleasing  contrast,  Professor  Eli  Heckscher  adopted  a  much  more 
relaxed  approach,  barely  mentioning  bullionism  as  a  separate  topic,  but 
including  it  simply  as  part  of  the  general  development  of  mercantilist 
theory.  In  his  authoritative  study,  Mercantilism,  he  most  conveniently 
and  sensibly  adopts  the  line  that  'Everybody  must  be  free  to  give  the 
term  mercantilism  the  meaning  and  more  particularly  the  scope  that 
best  harmonise  with  the  special  task  he  assigns  himself  (Heckscher 
1955,  I,  2).  He  then  goes  on  to  define  mercantilism  as  a  phase  in  the 
history  of  economic  policy  occurring  between  the  Middle  Ages  and  the 
age  of  laissez-faire  in  which  the  state  was  both  the  subject  and  the 
object  of  economic  policy.  'Ideas  on  the  balance  of  trade  and  the 
significance  of  money  undoubtedly  occupy  a  central  position  in 
mercantilism'  (I,  26).  Mercantilism  was  not  only  a  practical  policy  by 
which  the  state  attempted  to  increase  its  power  and  the  wealth  of  its 
citizens  but  also  'there  can  be  no  doubt  at  all  that  mercantilist 
discussion  was  of  importance  to  the  final  rise  of  economic  science  in  the 
eighteenth  century'  (I,  28).  If  there  is  a  dividing  line,  necessarily 
arbitrary  and  smudged,  between  early  continental  mercantilist  doctrine 
(equivalent  to  English  bullionism)  and  the  later  fully-fledged  theory,  this 
is  to  be  found  when  the  arguments  of  those  based  on  the  overall  balance 
of  trade  prevailed  over  those  concerned  simply  with  particular 
balances.  In  England  this  transition  began  around  1620  and  was  almost 
completed  by  1663  when  the  age-old  prohibition  of  the  export  of 
bullion  and  of  foreign  coin  was  removed.  But  of  course  not  all  writers, 
as  Viner  overemphasizes,  kept  to  this  neat  logical  divide,  for  some  quite 
advanced  mercantilist  views  appeared  before  1620,  while  many 
apparently  crude  and  narrow-minded  bullionist  views  appeared  long 
after  1663.  These  latter  views  should  not,  however,  necessarily  be  taken 
as  evidence  of  bullionist  back-sliding.  Just  as  in  our  modern  age,  ever 
since  the  1960s  the  general  requirement  of  nationalized  industries  to 
'break  even'  had  to  be  supported  by  stricter,  narrower,  particularized 
targets,  and  in  the  1980s  the  general  attempt  to  reduce  the  public  sector 
borrowing  requirement  had  to  be  reinforced  by  insisting  on  particular 
cash  limits  for  each  government  department,  in  exactly  the  same  way 
the  mercantilist  target  of  a  favourable  balance  of  trade  had  to  be 
supported  then  by  strict  limits  on  those  particular  items  of  trade  where 
laxity  had  led  to  substantial  leakages  of  bullion. 

The  first  written  evidence  in  England  of  a  mercantilist  viewpoint 
regarding  the  net  flow  of  specie  through  foreign  exchanges  appeared  as 
early  as  1381,  three  centuries  ahead  of  its  time,  when  Richard  Aylesbury 
argued  that  a  legal  ban  on  the  export  of  bullion  was  unnecessary 
provided  that  total  commodity  exports  at  least  balanced  imports. 



Similarly  he  argued  that  a  legal  ban  would  fail  if  exports  exceeded 
imports.  This  not  quite  isolated  but  premature  insight  was,  however, 
subsequently  overlooked  and  forgotten  in  the  rise  of  the  main  body  of 
bullionist  opinion  in  England,  such  as  that  of  Hales,  Malynes, 
Misselden  and  the  Muns,  father  and  son.  Of  critical  importance  as  a 
link  between  the  problems  of  debasement,  the  enclosures,  inflation  and 
the  foreign  exchanges  was  A  Discourse  on  the  Common  Weal  of  this 
Realm  of  England,  written  in  1549,  after  the  start  of  the  Great 
Debasement  and  before  the  recoinage,  the  latter  of  which  it  strongly 
recommended.  Thanks  to  the  patient  researches  of  Miss  Elizabeth 
Lamond  we  now  know  the  author  to  be  John  Hales  MP,  a 
Commissioner  on  Enclosures  for  the  Midlands  region.  Woven  into  the 
Discourse  are  all  the  basic  concepts  which  later  bullionists  were  to 

Perhaps  the  bullionist  viewpoint  in  its  simplest,  strictest  and  most 
dogmatic  form  was  that  put  forward  by  Gerhard  de  Malynes,  son  of  an 
English  mint-master  who,  having  emigrated  to  Antwerp,  returned  to 
England  to  assist  in  the  Elizabethan  recoinage.  Malynes  wished  for 
stricter  controls  on  the  foreign  exchanges,  advocated  the  return  of  the 
office  of  the  Royal  Exchequer  to  oversee  such  exchanges,  since 
'exchange  is  the  Rudder  of  the  Ship  of  Traffic'.  Trade  should  be 
monopolistically  controlled,  excessive  imports  discouraged  and  the 
exchange  rate  kept  as  high  as  possible.  'Throughout  his  active  life, 
Malynes  was  constantly  concerned  with  monetary  questions  and  in 
1609  was  appointed  a  commissioner  of  mint  affairs'  (E.  A.  J.  Johnson 
1965,  43).  The  'Harington'  private  monopoly  of  minting  farthings 
which,  as  we  have  seen,  was  bought  by  the  Duke  of  Lennox,  was 
eventually  purchased  by  Malynes  -  who  made  a  loss  on  the  deal.  His 
ideas,  as  shown  particularly  in  his  main  publication,  The  Canker  of 
England's  Commonwealth  (1601),  were  similarly  unsuccessful,  in  being 
rather  too  dogmatic  even  for  other  bullionists  like  Misselden  and  Mun 
to  accept  without  violent  verbal  rejoinders. 

The  most  celebrated  of  the  arguments  between  Malynes,  Misselden 
and  Mun  and  their  disciples  concerned  two  important  related  matters, 
first  the  particular  practical  problem  of  whether  to  cancel  or  to  allow 
the  continued  existence  of  the  East  India  Company,  and  secondly  the 
general  validity  of  the  balance  of  trade  theory.  Malynes  was  bitterly 
opposed  to  the  company,  Misselden  first  opposed  but  later  supported 
the  company,  while  Mun,  after  a  very  brief  initial  period  of  questioning, 
became  even  more  firmly  a  convinced  East  India  man.  Edward 
Misselden,  a  member  and  later  deputy  governor  of  the  Merchant 
Adventurers,  was  appointed  to  the  royal  commission  of  1621  to 



investigate  the  trade  depression,  and  in  the  same  year  published  his 
initial  views  in  his  pamphlet  Free  trade  or  the  Means  to  make  Trade 
Flourish.  In  this  he  agreed  with  those  who  opposed  the  loss  of  bullion 
by  traders  like  the  East  India  Company,  in  contrast  with  the  long 
history  of  the  success  of  Merchant  Adventurers  in  bringing  gold  and 
silver  in  to  Britain.  Within  the  short  space  of  two  years,  during  which  he 
began  part-employment  with  the  East  India  Company,  he  published 
The  Circle  of  Commerce  or  the  Balance  of  Trade  in  1623,  completely 
reversing  his  previous  view,  and  justifying  his  position  by  reference  to 
the  new  theory,  as  the  title  suggests,  of  the  balance  of  trade. 

This  was,  according  to  Professor  Viner's  researches,  the  first  time 
that  the  term  'balance  of  trade'  had  appeared  in  print,  'borrowed  from 
the  current  terminology  of  book-keeping  from  the  Italians  about  1600' 
(1937,  9).  As  modern  economists  would  describe  it,  the  new  micro- 
economic  concept  of  balancing  the  books  of  an  individual  company 
was  now  transferred  to  the  macro-economics  of  the  state,  a  most  timely 
and  influential  development  which  enabled  the  bullionists  to  judge  the 
'profit'  or  'gain'  from  trade  as  a  whole  by  means  of  its  net  acquisition  of 
bullion.  The  first  such  computation  for  England  had  already  been  made 
jointly  in  1615  by  Sir  Lionell  Cranfield  and  a  Mr  Wolstenholme  and 
was  referred  to  by  Sir  Francis  Bacon  in  an  essay  of  1616  (though  not 
published  until  1661).  Thomas  Mun,  grandson  of  the  Provost  of 
Moneyers  at  the  Royal  Mint,  became  a  member  of  the  East  India 
Company  in  1615,  and  in  1621  published  his  first  crude  defence  of  the 
company,  A  Discourse  of  Trade  from  England  into  the  East  Indies. 
However,  parliamentary  criticism  of  the  company,  based  on  earlier 
bullionist  theories,  continued  to  threaten  the  East  India  trade,  so  much 
so  that  the  company  appealed  to  Parliament  in  1628  in  a  famous  and 
influential  'Petition  and  Remonstrance  of  the  Governor  and  Company 
of  Merchants  of  London  trading  to  the  East  Indies'.  This  was  largely 
written  by  Edmund  Mun  and  formed  the  basis  of  the  brilliant  book 
published  posthumously  in  1664  by  his  son,  Sir  John  Mun.  If  a  true 
valuation  were  taken  of  the  re-export  trade  and  of  numerous  other 
benefits,  the  East  India  trade,  he  argued  'brings  in  more  treasure  than 
all  the  other  trades  put  together'  (E.  A.  J.  Johnson  1965,  75). 

Despite  Mun's  defence,  attacks  on  the  particular,  adverse  balances 
with  India  continued  throughout  the  seventeenth  century,  and  with 
France  for  much  of  the  eighteenth.  Nevertheless  the  mercantilist  point 
of  view,  based  on  the  overall  balance  of  trade,  was  clearly  winning  the 
battle,  both  in  theory  and  in  practice,  by  about  1640.  Where,  however, 
neither  the  older  bullionist  nor  the  new  mercantilist  arguments  could 
ever  convincingly  win  the  day  was  with  regard  to  the  ability  of  England 



(or  any  other  country)  to  achieve  through  trade  policy  a  permanent net 
inflow  of  specie.  The  question  of  what,  in  those  circumstances,  would 
happen  to  domestic  prices  relative  to  those  abroad,  and  therefore  to 
trade  flows  and  the  rates  of  exchange,  brings  us  on  to  an  examination  of 
contemporary  developments  in  the  quantity  theory  of  money. 

The  quantity  theory  in  its  fundamentals  is  the  oldest,  most  simple 
and  obvious  of  all  monetary  theories.  Whether  a  particular  society 
considers  its  money  to  be  a  special  kind  of  commodity  or  not,  money  in 
actual  fact,  like  all  other  commodities,  obeys  the  universal  economic 
law  in  that  its  unit  value  varies  inversely  with  the  total  quantity.  If  we 
add,  as  we  all  must,  'other  things  being  equal',  as,  for  example,  that 
reductions  in  quality  may  permit  commensurate  increases  in  quantity, 
we  are  of  course  simply  relating  the  universal  law  to  the  particular 
circumstances  of  the  time  and  place  in  question.  During  periods  of 
monetary  stability  the  general  public  does  not  bother  about  monetary 
theory  and  the  theorists  lie  dormant.  It  is  generally  only  during  periods 
of  substantial  financial  changes  that  interest  is  aroused  as  to  the  true 
nature  and  causes  of  such  events.  The  usual  result  is  to  produce  some 
up-to-date  variation  of  the  quantity  theory  appropriate  to  the 
particular  circumstances  obtaining  at  the  time.  The  quantity  theory  has 
been  the  most  popular  of  the  general  theories  of  money  because  it  is 
almost  infinitely  adaptable.  With  the  exception  of  Keynesian-type 
challenges,  it  has  been  almost  all  things  to  all  men.  Its  ability  to  find 
renewed  popular  acceptance  depends,  however,  on  the  age-old  stock 
phrases  being  recoined  form  time  to  time.  Friedmanism  is  just  a  modern 
example  of  a  long  line  going  back  beyond  Aristotle;  for  as  we  saw  in 
chapter  3,  it  was  the  world's  first  substantial  currency  debasement,  in 
Athens  in  405  BC,  that  gave  rise  to  the  first  recorded  reference,  by 
Aristophanes,  to  'Gresham's  Law'.  It  should  therefore  occasion  no 
surprise  that  the  first  substantial  treatment  of  the  quantity  theory  to 
appear  in  western  Europe  was  directly  concerned  with  the  need  to  re- 
establish monetary  stability  following  a  period  of  particularly  severe 
monetary  debasement. 

The  European  roots  of  the  quantity  theory  of  money  lead  back  to 
Nicole  Oresme  (1320-82).  Since  Oresme  was  undoubtedly  the  greatest 
economic  thinker  of  the  Middle  Ages,  concerned  especially  with 
monetary  theory  and  policy,  and  because  he  had  a  very  considerable 
influence  on  later  writers,  his  contribution  deserves  at  least  some  brief 
comment.  Oresme  was  born  near  Caen  around  1320,  and  in  1370  he 
was  made  chaplain  and  adviser  to  King  Charles  V  (1364-80)  and 
promoted  to  bishop  of  Lisieux  in  1377.  At  the  request  of  Charles,  aptly 
known  as  'the  Wise',  Oresme  translated  Aristotle's  Economics,  Ethics 



and  Politics.  Aristotle's  influence  and  that  of  a  large  number  of 
subsequent  writers  on  economic  matters,  including  Oresme's  teacher  at 
the  University  of  Paris,  Jean  Buridan,  are  clearly  to  be  seen  in  Oresme's 
own  writings.  In  glaring  contrast  to  the  contemporary  stability  of  the 
pound  sterling,  French  currency  had  become  the  money  box  of  its 
monarchs,  manipulated  at  their  pleasure.  Between  1295  and  1305,  the 
value  of  French  currency  was  reduced  by  no  less  than  80  per  cent,  and  in 
the  next  decade  brought  back  up  to  its  original  value,  only  to  fall  back 
again  during  the  reign  of  Charles  IV  (1322-8).  He  was  known  as  the 
Fair  -  a  reference  to  his  appearance,  not  character:  among  his  monetary 
misdemeanours  was  his  confiscation  of  the  property  which  the 
Lombard  bankers  held  in  France.  Oresme's  writings  need  therefore  to 
be  assessed  against  this  background  of  volatile  and  arbitrary  changes  in 
the  value  of  money  which  had  been  so  violent  that  they  threatened  to 
destroy  the  monetary  system.  The  first  edition  of  Oresme's  book, 
entitled  De  Origine  Natura  Jure,  et  Mutationibus  Monetarum  and 
consisting  of  twenty-three  chapters,  appeared  in  1355,  followed  by  an 
enlarged  edition  of  twenty-six  chapters  in  1358.  The  first  printed 
version  appeared  in  1477.  Oresme's  work  represents  a  watershed  in  the 
development  of  economics,  for  his  treatise  'was  the  first  independent 
monograph  on  the  subject ...  a  comprehensive  and  well-built  synthesis 
which  must  be  regarded  as  one  of  the  main  landmarks  in  early 
economics  literature'  (Sarton  1948,  II,  1,  494). 

Oresme  deplored  debasement  and  insisted  on  maintaining  the 
quality  and  therefore  the  stability  of  the  monetary  medium.  Although 
he  owed  his  office  directly  to  the  king  he  was  no  mere  placid  placeman. 
He  insisted  that  the  king  was  not  the  owner  but  rather  the  custodian  of 
the  currency  with  a  duty  on  behalf  of  the  public  to  maintain  its  value. 
Although  Oresme  was  perfectly  aware  of  the  use  of  credit  and  in 
particular  of  bills  of  exchange,  he  saw  money  as  being  based  absolutely 
on  the  intrinsic  value  of  the  metal  and  went  into  considerable  detail  on 
how  best  to  arrange  mint  prices,  exchange  rates  and  the  ratios  of  gold 
to  silver  and  to  other  alloys  in  order  to  show  what  was  necessary  in 
practice  to  achieve  the  desired  degree  of  stability.  As  a  mathematician 
and  physicist,  his  practical  approach  commanded  respect,  for  he  was  an 
all-rounder,  good  with  his  hands,  his  head  and  his  heart.  His  emphasis 
on  the  priority  of  maintaining  the  value  of  money  and  on  his  view  as  to 
what  we  would  call  the  narrowness  of  the  money  base,  show  him  to  be 
the  first  bullionist  and  indeed  in  a  sense  the  first  monetarist. 

The  next  important  statement  of  the  quantity  theory  came  from  an 
unexpected  source,  from  someone  whose  genius  in  astronomy  has 
perhaps  blinded  us  to  appreciation  of  his  more  mundane  contributions 



to  the  ordinary  business  of  life.  Nicholas  Copernicus  (1473-1543)  first 
became  interested  in  the  theory  of  money  because,  like  Oresme,  he  was 
forced  to  suffer  from  successive  debasements  which  were  then  occurring 
in  a  number  of  Polish  provinces  as  throughout  Europe,  a  problem  made 
all  the  worse  with  their  many  local  currencies  and  even  more  numerous 
systems  of  weights  and  measures.  As  a  result  of  his  studies  he  produced 
his  Treatise  on  Debasement  in  1526  (though  this  was  not  published  in 
printed  form  until  the  Warsaw  edition  of  1816).  In  his  treatise,  though 
strongly  condemning  debasement,  he  nevertheless  argued  that  it  was 
the  total  amount  of  currency,  as  indicated  by  the  total  number  of  coins 
in  circulation  rather  than  the  total  weight  of  metal  they  contained  that 
really  determined  the  level  of  prices  and  the  buying  power  of  the 
currency.  He  grasped  the  essential  fact  that,  for  the  great  majority  of 
everyday,  internal  transactions,  coins  had  already  become  simply 
tokens  of  value.  It  was  their  number,  not  their  intrinsic  metallic 
content,  their  quantity  rather  than  their  quality,  that  fundamentally 
determined  their  true  value.  It  was  the  duty  of  the  princes  therefore  to 
limit  total  circulation,  and  the  avoidance  of  debasement  was  seen  as  the 
best  practical  method  of  avoiding  an  excess  issue  of  coinage  and 
therefore  of  avoiding  the  gross  instability  of  prices  and  of  exchanges. 
Although,  given  the  much  more  detailed  treatment  produced  by 
Oresme,  Copernicus  can  no  longer  be  said  to  have  made  the  first 
statement  of  the  quantity  theory  (as  some  claim),  nevertheless  the 
emphasis  which  he  placed  on  variations  in  quantity  and  not  simply  on 
quality  at  least  justify  his  position  as  one  of  the  important  pioneers  in 
the  development  of  monetary  theory  before  the  influx  of  American 
silver  rose  to  such  a  level  as  to  make  such  ideas  more  easily  and 
commonly  appreciated. 

Next  in  time,  and  again  spurred  on  to  his  conclusions  by  the  unusual 
spectacle  of  English  debasement  on  the  continental  scale,  came  the 
Discourse  of  Hales,  already  described.  In  this  connection,  however,  the 
common  view,  given  by  E.  A.  J.  Johnson,  among  others,  stands  in  need 
of  correction.  Johnson  wrongly  states,  As  every  student  of  economic 
history  knows,  Hales  gave  the  wrong  explanation  for  the  rise  of  prices' 
and  'Hales  erred  in  assigning  the  cause  of  the  rise  in  prices  to 
debasement'  (1965,  37).  As  Dr  Challis  in  particular  has  shown, 
debasement  in  England  was  in  fact  the  most  important  single  cause  of 
the  high  rate  of  inflation  occurring  during  the  decade  when  Hales 
wrote.  Hales  was  right,  and  should  not  be  blamed  for  failing  to  take 
into  account  the  influx  of  American  silver  which  did  not  enter  England 
in  any  substantial  amount  until  much  later.  Jean  Bodin's  Reply  to 
Malestroit  (1568)  is  rightly  regarded  as  a  milestone  in  the  development 



of  the  quantity  theory  of  money,  although  it  again  needs  to  be  pointed 
out  that  while  Bodin  was  the  most  influential  contemporary  writer  to 
underline  the  role  of  New  World  specie  as  the  main  cause  of  inflation  he 
was  no  crude  bullionist.  While  he  was  clear  that  'it  is  the  abundance  of 
gold  and  silver  that  causes,  in  part,  the  dearness  of  things',  he  also 
showed  that  other  'real'  or  non-monetary  causes  were  at  work  such  as 
'the  increase  in  trading  activity,  the  rise  in  population  and  agricultural 
expansion'  (Vilar  1976,  60-91). Bodin  also  related  very  carefully  some  of 
the  main  regional  and  temporal  differences  in  inflation  to  the  pattern  of 
geographical  dispersal  of  Spanish  specie  -  first  in  Peru  itself,  then  in 
Andalusia,  then  to  the  rest  of  Spain,  then  to  Italy,  France,  Germany,  the 
Low  Countries  etc.  as  waves  going  from  the  monetary  centre  to  the 

By  the  beginning  of  the  seventeenth  century  therefore  it  was 
becoming  clear  to  practically  all  writers  on  money  (and  they  were 
many),  whether  they  might  be  considered  bullionists  or  mercantilists, 
that  a  persistent  influx  of  precious  metals  would  bring  with  it  serious 
inflationary  consequences.  The  decline  of  Spain  was  already  becoming 
obvious.  Nevertheless,  the  main  body  of  bullionist/mercantilist  opinion 
in  England,  while  not  being  unaware  of  the  difficulties,  seemed  to  be  of 
the  general  opinion  that  the  Spanish  disease  could  in  fact  be  avoided. 
England  was  at  the  periphery  and  therefore  just  'catching  up'  on  her 
share  of  wealth  from  the  rest  of  the  world  and  especially  from  her 
European  competitors.  It  was  also  emphasized  that  so  long  as  England 
expanded  her  economy,  developed  her  exports,  encouraged  the 
expansion  of  her  merchant  marine,  and  so  on,  the  influx  of  precious 
metals  would  be  put  to  good  use  rather  than  wasted  in  inflationary 
excesses.  This  vital  necessity  of  expanding  production  by  the  proper 
investment  of  favourable  balances  was  clearly  emphasized  by  Malynes 
in  his  Canker  of  England's  Commonwealth:  'The  more  ready  money, 
either  in  specie  or  by  exchange,  that  our  merchants  should  make,  the 
more  employment  would  they  make  upon  our  home  commodity, 
advancing  the  price  thereof,  which  price  would  augment  the  quantity  by 
setting  more  people  on  work.'  As  Heckscher  (from  whom  Malynes's 
quotation  is  taken)  points  out,  'This  was  perhaps  the  first  time  that  the 
claim  that  rising  prices  increase  employment  was  ever  clearly  expressed' 

By  giving  the  quantity  theory  of  money  this  dynamic,  Keynesian 
twist,  the  mercantilists  were  able  to  postpone  the  day  of  reckoning  until 
1776,  when  Adam  Smith  destroyed  them  in  theory  and  the  revolting 
American  colonies  in  practice.  But  before  that  fateful  date,  bullionism 
merging  into  mercantilism  enjoyed  some  two  centuries  or  more  of 



predominance  as  an  economic  theory  based  very  largely  upon  a 
realization  of  the  power  of  money  as  a  liquid,  macro-economic 
resource.  It  would  be  very  wrong,  however,  to  allow  the  brilliance  of 
either  Adam  Smith  or  Thomas  Jefferson  to  blind  us  to  the  positive 
achievements  of  mercantilism.  It  was  during  that  period  that  the 
economic  centre  of  gravity  moved  from  the  Mediterranean  to  north- 
west Europe  in  general  and  Britain  in  particular.  It  was  during  the  latter 
part  of  that  same  period  that  British  banking  finally  emerged  to  fame 
and  fortune.  But  in  1640  that  could  not  have  been  readily  foreseen. 

Banking  still  foreign  to  Britain? 

Perhaps  the  single  most  important  sign  that  England  was  determined  to 
develop  her  own  financial  institutions  rather  than  rely  on  foreign  banks 
was  the  building  of  the  Royal  Exchange  in  1566.  This  was  the 
inspiration  of  Sir  Thomas  Gresham  (1519-79)  and  it  received  the  royal 
seal  of  approval  when  it  was  officially  opened  by  Elizabeth  I  in  the 
following  year.  Yet  it  is  significant  that  not  only  the  very  concept  of  the 
'Bourse',  which  was  its  first  name,  was  imported,  but  that  the  building 
itself  was  designed  by  a  Flemish  architect,  that  the  skilled  craftsmanship 
was  supplied  by  Flemish  carpenters  and  masons,  and  that  even  the  bulk 
of  the  building  materials  such  as  the  stone  and  glasswork  were 
imported.  The  most  highly  skilled  workmen  and  the  most  highly  skilled 
operators  on  the  foreign  exchange  market  (with  the  outstanding 
exception  of  Gresham  himself)  were  at  first  foreigners,  especially 
Italians,  Germans  and  increasingly  the  Dutch.  Gresham  had  learned  his 
skill  mainly  in  Antwerp  where  he  lived,  on  and  off,  for  twenty-three 
years  between  1551  and  1574,  operating  both  on  his  own  account  and  as 
royal  agent.  There  he  learned  the  art  of  large-scale  lending  and  borrow- 
ing as  well  as  foreign  exchange  so  thoroughly  that  he  frequently 
out-performed  his  foreign  tutors.  A  famous  instance  of  England's 
growing  financial  expertise  was  demonstrated  in  1587  when  Sir  Francis 
Walsingham  arranged  with  a  number  of  other  operators  to  'corner'  so 
many  bills  drawn  on  Genoan  banks  that  the  build-up  of  the  resources 
necessary  to  equip  Philips  IPs  Great  Armada  was  delayed.  Whether  this 
was  the  main  reason  why  his  fleet  failed  to  sail  against  England  until  the 
'summer'  of  1588  is  doubtful,  but  it  was  at  least  a  substantial  contribu- 
tory reason  for  the  delay  and  illustrates  how  sophisticated  the  financial 
aspects  of  economic  warfare  had  become  by  the  1580s.  An  interesting 
example  of  Gresham's  many-sided  financial  genius  was  his  proposal  to 
set  aside  a  fund  of  £10,000  to  be  used  to  counter  adverse  fluctuations  in 
the  exchange  rates,  a  sixteenth-century  equivalent  of  the  Exchange 



Equalization  Account  of  the  1930s.  Although  this  scheme  failed,  mainly 
because  Elizabeth  thought  it  too  extravagant,  it  again  indicates  the 
affinity  for  finance  that  enabled  him  to  amass  the  largest  fortune  of  any 
contemporary  commoner  in  England. 

It  is  significant  too  that  such  examples  of  advanced  financial 
development  were  concerned  particularly  with  foreign  exchange,  where 
England  was  the  eager  pupil  still  lagging  behind  her  European  masters. 
As  we  have  seen,  a  much  wider  range  of  banking  expertise  had  long 
been  developing  on  the  Continent,  where  the  gradual  decline  of  the 
periodical  meetings  of  medieval  fairs  had  led  to  the  more  permanent 
provision  of  everyday  banking  facilities,  including  not  only  the  issue  of 
bills  of  exchange  and  foreign  exchange  facilities  but  also  regular  deposit 
banking  and  loan  facilities  for  ordinary  business  as  well  as  for  rich 
merchants,  princes,  municipalities  and  state  governments.  The  Bank  of 
Barcelona  had  been  founded  as  early  as  1401;  the  Bank  of  St  George, 
Genoa,  in  1407,  followed  in  1585  by  the  public  Bank  of  Genoa,  which 
later  occupied  a  strategic  role  in  European  finance;  the  Banco  di  Rialto 
in  Venice  followed  shortly  after  in  1587.  These  are  just  a  few  examples 
of  a  mushroom  growth  of  continental  (especially  Italian  at  first  and 
later  Dutch)  banks,  all  the  more  important  because  they  had  numerous 
branches  or  agents  in  most  of  the  main  financial  centres  of  Europe, 
including  London.  The  financial  and  political  power  of  the  Bank  of 
Genoa  is  illustrated  by  Andreades's  description  that  it  carried  on  'a 
business  very  similar  to  that  of  modern  banks'  acting  as  'a  state  within 
a  state  .  .  .  The  East  India  Company  never  held  in  England  a  position  a 
quarter  as  great'  (Andreades  1966,  79).  A  significant  pointer  to  the 
northern  movement  of  Europe's  financial  centre  of  gravity  was  the 
dominance  of  Antwerp  during  most  of  the  sixteenth  century.  The 
Tudors  borrowed  considerable  sums  from  time  to  time  from  the  Low 
Countries,  including  as  we  have  seen,  the  loan  of  £75,000  to  assist 
Elizabeth's  recoinage.  As  Antwerp  declined,  so  the  leading  financial 
role  was  taken  up  by  the  public  Bank  of  Amsterdam,  known  also  as  the 
'Wissel'  or  'Exchange  Bank',  founded  in  1609;  but  part  of  Antwerp's 
loss  was  also  eagerly  taken  up  by  London. 

One  of  the  most  important  and  pervasive  foreign  influences  which 
increasingly  modified  English  business  methods  at  this  time  was  the 
introduction  of  'Italian'  double-entry  bookkeeping.  We  have  already 
seen  how  the  idea  of  a  balance  between  income  and  expenditure  was 
transferred  to  the  national  accounts  to  support  mercantilist  views 
regarding  the  balance  of  payments.  As  in  Italy,  among  the  first  to  use 
the  new  methods  in  England  were  those  merchants  whose  activities 
commonly  included  foreign  exchange.  Gradually,  however,  the  new 



custom  spread  throughout  most  business,  except  that  the  Exchequer 
itself  was  slow  in  adopting  double-entry.  Foreigners  resident  in  London 
were  by  their  example  our  first  tutors  and  'the  ledger  of  the  Borromeo 
Company  of  London,  covering  the  years  1436—9  is  an  example  of  an 
advanced  technique  that  was  adopted  by  English  merchants  only  a 
century  later'  (Ramsay  1956,  185).  Among  the  earliest  examples  of 
double-entry  by  an  indigenous  merchant,  are  the  accounts  of  Thomas 
Howell  covering  the  six  years  1522—7.  As  well  as  the  Italians,  the 
Spaniards,  French,  Germans  and  Dutch  had  long  been  familiar  with  the 
new  accounting  methods  before  they  became  widely  adopted  in 
England,  a  development  which  had  to  await  publication  of  translations 
of  the  standard  Italian  works  on  the  subject. 

Although  the  origins  of  double-entry  bookkeeping  appear  to  be 
uncertain,  the  system  had  been  in  operation  for  well  over  a  century 
before  the  first  Italian  book  on  the  subject  was  printed  and  published  in 
Venice  in  1494.  This  was  the  famous  Summa  de  Arithmetica, 
Geometrica,  Proportioni  et  Proportionalita,  written  by  Friar  Luca 
Pacioli,  a  mathematician  and  close  friend  of  Leonardo  da  Vinci.  His 
book  consisted  of  five  sections:  'On  Arithmetic  and  Algebra';  'Their 
Use  in  Trade  Reckoning';  'Bookkeeping';  'Money  and  Exchange';  and 
'Pure  and  Applied  Geometry'.  His  work  created  an  immediately 
favourable  impression,  and  in  1496  Pacioli  was  appointed  professor  of 
mathematics  at  Milan.  The  popularity  of  the  bookkeeping  section  of 
his  Summa  led  to  its  being  published  separately  as  The  Perfect  School 
of  Merchants  in  1504.  The  new  form  of  bookkeeping  gave  a  further 
stimulus  to  the  wider  use  of  Arabic  numerals.  The  first,  but  not 
particularly  influential,  translation  of  Pacioli's  ideas  to  appear  in 
English,  was  published  by  Hugh  Oldcastle  in  1543.  Far  more  influential, 
however,  was  James  Peele's  The  Manner  and  Form  How  to  Keep  a 
Perfect  Reckoning,  published  in  London  in  1553. 

Exactly  how  important  the  new  accounting  methods  were  to  such 
broad  matters  as  the  pace  of,  and  indeed,  the  very  nature  of,  economic 
growth  in  Europe,  remains  a  matter  of  dispute.  Some  see  double-entry 
simply  as  a  useful  technical  device  of  barely  more  than  marginal 
importance  to  economic  development  as  a  whole,  while  others,  notably 
Werner  Sombart,  have  seen  the  new  accounting  methods  as  being  of 
fundamental  importance  to  the  development  of  modern  capitalism. 
Thus  Sombart  claimed  that  'Capitalism  without  double-entry  book- 
keeping is  simply  inconceivable  .  .  .  With  this  way  of  thinking  the 
concept  of  capital  is  first  created'  (Sombart  1924,  II,  110).  A  modern 
expert  views  the  contribution  of  accountancy  much  less  dramatically  as 
not  having  'the  far-reaching  consequences  attributed  to  it  by  Sombart', 



but  rather  possessing  merely  'modest  practical  utility'  (Yamey  1982, 
chapter  2,  p.21).  In  itself  such  an  innovation  in  accountancy  may  well 
not  amount  to  very  much.  However,  taken  in  conjunction  with  all  the 
other  contemporary  pressures  on  businessmen,  double-entry  may  well 
have  been  a  catalyst  in  the  development  of  more  capitalistic  attitudes. 
The  truth  probably  lies  somewhat  nearer  the  German  exaggeration  of 
Werner  Sombart  than  the  typical  English  understatement  of  Professor 

The  Royal  Exchange  was  far  from  being  the  only  example  of  the 
important  role  played  by  the  importation  of  skilled  labour.  Foreign 
labour  and  capital  combined  to  raise  the  rate  of  economic  growth  above 
that  of  Britain's  European  neighbours,  with  the  result  that  the  gap 
between  their  standards  of  productive  efficiency  in  agriculture  and 
industry  and  therefore  of  average  standards  of  living,  was  narrowed  in 
favour  of  Britain.  Professor  Nef  has  shown,  in  his  essay  on  'The 
Progress  of  Technology  and  the  Growth  of  Large-Scale  Industry  in 
Great  Britain,  1540-1640'  that  foreign  labour  and  capital  helped  both 
to  transform  existing  industry  and  to  introduce  a  range  of  new 
industries  into  Britain  in  this  period,  so  reducing  Britain's  import- 
dependence  and  expanding  her  exports.  By  the  end  of  this  period, 
Britain  was  beginning  to  overtake  her  neighbours  in  certain  areas. 

While  the  progress  of  large-scale  industry  in  mining  and  metallurgy  from 
1540  to  1640  was  stimulated  by  the  application  of  technical  processes 
introduced  with  the  help  of  foreign  artisans,  it  is  probable  that  before  the 
middle  of  the  seventeenth  century  these  processes  were  being  more 
extensively  used  than  in  foreign  nations.  (Nef  1954,  98) 

Similarly  in  agriculture  the  draining  of  the  Fens  was  financed  jointly  by 
Dutch  and  English  capital  (including  £100,000  supplied  by  the  Duke  of 
Bedford),  under  the  experienced  leadership  of  the  Dutch  engineer 
Cornelius  Vermuyden  with  a  core  of  skilled  Dutch  workmen.  The  scale 
of  business,  whether  commercial,  agricultural  or  industrial,  was 
becoming  greatly  enlarged  beyond  the  financial  resources  of 
individuals.  The  era  of  joint-stock  enterprise  was  emerging,  and  with  it 
the  need  for  new,  stronger  financial  intermediaries.  The  rise  of  these 
new  financial  institutions  was  integrally  associated  therefore  with  the 
increase  in  the  scale  of  agricultural  and  industrial  enterprise. 

It  is  significant  that  the  first  of  such  joint-stock  companies,  the 
Russia  Company  of  1553,  arose  out  of  a  search  for  the  North-East 
Passage,  and  that  German  metalworkers  were  prominent  in  the 
development  of  the  first  of  two  inland  joint-stock  companies,  the  Mines 
Royal  and  the  Mineral  and  Battery,  both  formed  by  Royal  Charter  in 



1568.  Among  the  founding  stock  of  the  Levant  Company  of  1581  was  a 
large  sum  of  £40,000  contributed  by  Elizabeth  I  as  part  of  her  proceeds 
from  Drake's  profitable  circumnavigation.  Foreign  capital  in  one  way  or 
another  found  its  way  into  most  of  these  joint-stock  companies, 
including  the  most  famous  of  all  such  ventures,  the  East  India 
Company,  founded  in  1600.  The  Royal  Exchange  was  for  many  years 
more  of  a  club  for  merchants  engaged  in  overseas  trade  than  simply  a 
foreign  exchange  market.  One  of  the  main  reasons  for  the  net  inflow  of 
foreign  investment  into  Britain  was  the  fact  that  interest  rates  offered  in 
Britain  were  considerably  higher  than  those  in  Holland,  and  London 
remained  a  powerful  magnet  for  overseas  investors  throughout  this 
period.  Nevertheless,  though  London  was  especially  attractive  for 
capital,  it  was  no  longer  necessary  for  foreigners  to  be  given  special 
privileges  in  conducting  foreign  trade,  and  as  a  sign  of  this,  the 
Steelyard,  the  London  headquarters  of  the  Hanseatic  League,  was 
closed  down  in  1597.  Although  Dutch  influence,  supplemented  by  that 
of  the  French  Huguenots,  continued  to  play  a  strong  role  in  financial 
circles  in  London  throughout  the  seventeenth  century,  that  of  the 
Italians  and  Germans  declined,  particularly  from  the  onset  of  the 
Thirty  Years  War  in  1618.  By  1640  the  foreigners  who  had  helped  to 
build  and  operate  the  Royal  Exchange  were  no  longer  the  dominant 
partners.  Thus  although  'banking'  in  the  strict  sense  of  the  term  was 
still  largely  foreign  to  Britain  at  the  beginning  of  the  seventeenth 
century,  it  had  become  much  less  so  by  around  1640.  The  financial 
apprentice  was  about  to  set  up  his  own  unmistakable  brand  of  banking 


The  Birth  and  Early  Growth  of  British 
Banking,  1640-1789 

Bank  money  supply  first  begins  to  exceed  coinage 

Many  of  the  most  important  aspects  of  modern  banking  emerged  in 
Britain  in  the  century  or  so  after  1640,  during  which  the  forces  of 
constitutional,  agricultural  and  commercial  revolution  intermingled  to 
prepare  the  way  for  the  world's  first  industrial  revolution.  From  being 
simply  an  industrial  and  financial  apprentice  of  continental  Europe, 
particularly  Holland,  Britain  had  by  the  end  of  the  period  clearly 
established  a  position  of  international  leadership.  The  expansion  of 
private  debt  and  credit  channelled  mainly  through  London  by  new 
groups  of  financial  intermediaries  using  new  forms  of  notes,  bills  and 
cheques;  the  crucial  change  in  government  debt  from  a  royal,  personal 
obligation  to  the  higher  status  of  a  national  debt;  the  growth  of 
overseas  trade  more  commonly  financed  by  bills  drawn  on  London,  and 
the  modification  of  this  system  in  order  to  finance  the  growth  of 
domestic  trade  and  production  financed  by  internal  bills;  the  growth  of 
taxation  made  more  viable  through  more  efficient  'farming';  the 
increased  importance  of  marine  insurance,  life  assurance  and,  after  the 
Great  Fire  of  London,  of  fire  insurance;  the  growing  popularity  of  state 
lotteries  and  annuities;  the  growth  in  the  business  of  the  stock  exchange 
and  foreign  exchanges  -  all  the  above  were  just  some  of  the  more 
significant  among  a  whole  host  of  changes  which  together  stimulated 
the  development  of  specialized  financial  institutions.  Among  these  the 
goldsmith  bankers  were  eventually  to  triumph  over  their  early  rivals 
such  as  the  scriveners,  brokers  and  merchants.  By  the  end  of  the 
seventeenth  century  the  popular  clamour  for  a  public  bank  to  compare 
with  those  of  Italy,  Sweden  and  especially  Holland,  and  to  compete 



with  the  private  goldsmith  bankers  so  as  to  bring  cheaper  money  to 
Britain,  culminated  in  the  establishment  of  the  Bank  of  England  in  1694 
and  the  Bank  of  Scotland  a  year  later. 

These  exciting  entrepreneurial  initiatives  had  by  the  end  of  the 
seventeenth  century  led  to  the  position  where  the  supply  of  bank  credit 
in  Britain  was  an  essential  and  growing  supplement  to  the  stock  of 
coins,  so  that  by  the  time  Adam  Smith's  Wealth  of  Nations  was 
published  in  1776,  bank  money  clearly  exceeded  metallic  money,  a 
milestone  in  world  monetary  history.  The  important  macro-economic 
results  that  would  stem  from  supplementing  coins  with  bank  paper 
were  remarkably  well  foreseen  by  a  number  of  mid-seventeenth-century 
writers,  most  clearly  of  all  by  Sir  William  Petty  (1623-87),  a  veritable 
polymath,  professor  of  anatomy  at  Oxford,  musician,  inventor,  founder 
member  of  the  Royal  Society  and  a  most  percipient  political  economist. 
In  his  Quantulumcunque  concerning  Money  (1682)  he  stated 
prophetically,  'We  must  erect  a  Bank,  which  well  computed,  doth 
almost  double  the  Effect  of  our  coined  Money',  adding  with  some 
pardonable  exaggeration  that  'We  have  in  England  Materials  for  a  Bank 
which  shall  furnish  Stock  enough  to  drive  the  Trade  of  the  whole 
Commercial  World.' 

Nevertheless,  important  as  the  new  banks  were  for  the  merchants, 
lawyers,  goldsmiths  and  for  the  government,  (their  most  important 
customer),  coins  and  tokens  remained  the  only  currency  handled  by  the 
vast  majority  of  the  population.  Velocity  of  circulation  varied  usually  as 
it  still  does  inversely  with  the  value  of  the  transaction,  with  the  small 
silver  and  copper  coins  changing  hands  in  the  ordinary  daily  business  of 
life  far  more  frequently  than  either  gold  or  the  ownership  of  the 
'Running  Cash  Accounts'  of  the  goldsmith  bankers.  In  drawing 
attention  therefore  to  the  undoubted  economic  significance  of  the  new 
sources  of  generally  safe  saving  and  convenient,  cheap  lending  provided 
by  the  banks,  we  need  to  remind  ourselves  of  the  absolutely 
indispensable  role  played  by  full-bodied  silver  and  gold  coins  in  the 
economic  life  of  the  community,  a  situation  that  was  to  remain  true,  by 
and  large,  right  up  to  1914.  The  new  forms  of  bank  money  brought 
a  liberating,  timely  and  essential  extension  to  overcome  the 
debilitating  constraints  of  the  metallic  money  supply,  and  in  addition 
the  bankers  offered  a  range  of  new  financial  services  beyond  the  ken  of 
the  Royal  Mint.  All  the  same,  the  healthy  development  of  the  banks 
themselves  was  crucially  dependent  upon  the  foundation  of  a  sound 
and  sufficient  supply  of  the  traditional  and  officially  most  important 
form  of  money;  gold,  silver  and  copper  coins.  Let  us  therefore  turn  now 
to  consider  the  main  features  in  the  development  of  the  coinage  system 



in  Britain  in  the  century  or  so  after  1640  with  special  but  not  exclusive 
reference  to  its  interaction  with  the  birth  and  growth  of  British 

From  the  seizure  of  the  mint  to  its  mechanization,  1640—1672 

'Numismatically  the  reign  of  Charles  I  (1625-1642)  is  one  of  the  most 
interesting  of  all  the  English  monarchs'  (Seaby  and  Purvey  1982,  164). 
We  noted,  in  chapter  5,  that  the  1630  treaty  with  Spain  had  guaranteed 
Charles  abundant  supplies  of  bullion,  mostly  silver,  so  enabling  him 
during  his  interrupted  reign  of  twenty-four  years  to  produce  around  £9 
million  of  coins,  almost  double  that  issued  during  Elizabeth's  long  reign 
of  forty-five  years.  The  Tower  mint  in  London  became  so  busy  that 
branch  mints  were  opened,  first  at  Aberystwyth  in  1637,  and  then, 
when  Charles  was  forced  out  of  London  by  the  Civil  War,  he  opened  a 
large  number  of  mints,  those  at  Oxford,  Shrewsbury  and  Bristol  being 
particularly  active.  In  addition,  use  was  made  of  mints  at  Colchester, 
Chester,  Cork,  Edinburgh,  Dublin,  Exeter,  Salisbury,  Truro,  Weymouth, 
Worcester  and  York.  Coinage,  of  a  sort,  was  also  turned  out  for  the 
hard-pressed  royal  cause  in  the  besieged  towns  of  Carlisle,  Newark, 
Pontefract  and  Scarborough.  Apart  from  the  rather  strange  pieces 
produced  by  the  latter  four  towns  it  is  important  and,  given  Charles's 
character,  surprising  to  note  that  the  quality  of  this  vast  new  issue  was 
meticulously  maintained. 

Charles,  habitually  short  of  money,  treasured  the  profits  from 
minting,  and  by  a  royal  proclamation  in  1627  tried  to  add  to  them  by 
reviving  the  Crown's  ancient  monopoly  of  exchanging  and  exporting 
coin.  The  king  was  forced  to  fume  in  vain  against  the  growing  power  of 
the  goldsmiths  who  had  'left  off  their  proper  trade  and  turned  [into] 
exchangers  of  plate  and  foreign  coins  for  our  English  coins,  though  they 
had  no  right'.  Charles  was  strongly  tempted  on  at  least  two  occasions 
to  go  for  the  quick,  rich  profits  to  be  reaped  from  debasement.  His  first 
attempt,  made  in  1626  just  a  year  after  he  came  to  the  throne,  failed 
largely  through  the  opposition  of  the  Privy  Council  led  by  Sir  Robert 
Cotton.  His  second  vain  attempt,  in  1640,  involved  a  plan  to  coin  some 
£300,000  nominal  value  shillings  but  containing  only  a  quarter  of  silver, 
enabling  him  to  pocket  the  gross  profit  of  £225,000  less  the  expenses  of 
the  deal.  Yet  again  the  opposition  of  the  Council,  stirred  by  a  speech  by 
Sir  Thomas  Roe  —  remarkably  similar  to  that  of  Cotton  —  proved  too 
strong,  and  the  purity  of  the  sterling  standard  was  maintained.  In  the 
same  year  Charles  forced  the  East  India  Company,  to  which  he  was 
already  in  debt,  to  sell  to  him  on  two  years'  credit  its  entire  stock  of 



pepper,  a  favourite  commodity  for  speculation  at  that  time.  Charles 
agreed  a  purchase  price  of  2s.  Id.  per  lb  and  sold  the  lot  immediately  for 
Is.  Sd.  per  lb  for  ready  money.  Thus,  although  he  considerably 
increased  his  medium-term  debt,  the  deal  gave  him  the  cash  he  so 
desperately  needed,  but  again  at  the  further  cost  of  alienating  the  City 

Thwarted  by  the  Council,  by  Parliament  and  by  the  City  of  London, 
which  latter  pointedly  refused  the  king's  request  for  a  loan  of  £200,000, 
Charles  turned  to  another  rash  expedient  which  was  to  lead  to 
immediate  and  long-term  results  rather  different  from  those  he  had 
anticipated.  As  from  27  June  1640  he  decided  to  put  a  stop  to  the  flow 
of  coin  from  the  mint,  taking  for  himself  most  of  the  outflow  which 
normally  went  to  the  merchants  and  goldsmiths  to  whom  the  king  was 
permanently  in  debt.  On  the  total  amount  of  between  £100,000  and 
£130,000  thus  locked  up  in  the  Tower  mint  and  which  in  normal 
circumstances  would  have  been  claimed,  as  and  when  coined,  by  his 
creditors,  the  king  proposed  to  allow  8  per  cent.  The  merchants  and 
goldsmiths  immediately  raised  such  an  outcry  that  Charles  partially 
relented,  allowing  two-thirds  of  the  total  bullion  to  be  coined  and  let 
out  in  the  usual  way,  but  he  still  insisted  on  holding  back  one-third  for 
six  months,  paying  his  creditors  8  per  cent.  Thus  although  this  partial 
stoppage  of  the  vast  flow  of  issues  to  which  the  merchants,  goldsmiths 
and  other  creditors  of  the  king  had  rightly  become  accustomed  might 
not  be  quite  accurately  described  with  the  confiscatory  overtones  of  the 
common  description  of  'seizing  the  goldsmiths'  deposits',  and  although 
the  enforced  creditors  were  eventually  paid  in  full,  royal  credit  had 
suffered  a  cruel  blow  in  a  most  financially  sensitive  area.  Consequently 
that  growing  body  of  influential  persons  desirous  of  setting  up  some 
form  of  national  or  public  bank  were  now  more  determined  than  ever  to 
prevent  such  an  institution  from  coming  directly  under  the  power  of  the 
monarch  to  use  as  an  extension  of  his  mint,  and  thus  granting  him 
further  independence  from  the  growing  power  of  Parliament  over  the 
royal  purse  -  just  another  example  of  how  monetary,  fiscal  and 
constitutional  matters  were  inextricably  intertwined  in  the  history  of 
the  mid-seventeenth  century. 

Despite  a  couple  of  lapses  in  intention,  Charles  had  in  fact  fully 
upheld  the  quality  of  newly  issued  money.  Indeed  during  his  reign  the 
mint  began  to  give  some  attention  to  the  new  inventions  which  were 
being  more  fully  applied  elsewhere.  Although  English  mints  had  on  the 
whole  maintained  the  weights  and  purity  of  their  gold  and  silver 
coinage  at  a  higher  level  than  on  the  Continent,  they  lagged  behind  in 
the  technical  developments  taking  place  in  the  mechanization  of 



minting,  particularly  in  France  and  Flanders.  The  transformation  of 
coin-making  from  the  slow  laborious  hand  hammering  methods  that 
had  been  in  basic  principle  unchanged  from  the  days  of  ancient  Greece 
into  a  more  mechanized  form,  able  to  produce  a  faster,  cheaper  and 
more  uniform  output,  much  more  difficult  to  counterfeit,  was  not  the 
result  of  a  sudden,  single  invention,  but  emerged  from  a  long  process  of 
trial  and  error,  made  all  the  longer  and  more  difficult  by  the  furious 
opposition  of  the  established  moneyers.  It  took  many  years  of  patient 
effort  to  produce  horse-powered  machines  to  roll  the  metal,  to  cut  out 
the  circular  blanks,  to  stamp  the  engravings  firmer  and  more  quickly 
than  was  possible  by  hand  and,  perhaps  more  important  than  all  else  at 
that  time,  to  be  able  to  introduce  various  forms  of  graining  around  the 
circumference  of  the  coins  and  to  make  inscriptions  around  the  edges, 
both  of  these  latter  devices  enabling  the  facile  coin  clipper  finally  to  be 
outwitted.  The  fully  mechanized  or  'milled'  coin  with  its  famous  milled 
edge  first  reached  complete  acceptance  by  1645  in  France  when  the 
hammer  was  finally  banished  from  the  Paris  mint,  a  situation  not 
achieved  in  England  until  after  the  Restoration. 

'It  was  only  with  the  employment  of  Eloy  Mestrell  at  the  [Tower] 
mint  during  the  early  years  of  Elizabeth's  reign  that  mechanization  really 
got  under  way',  involving  experiments  with  horse-powered  machines 
for  stamping,  and  in  making  counter-rotating  hand  screw  machines  for 
edging  devices  (Challis  1978, 16).  His  experiments  were  not  well  received. 
He  was  dismissed  in  1572  and  hanged  ignominiously  in  1578  for 
counterfeiting,  the  very  crime  his  machines  were  intended  to  circumvent. 
Later  immigrant  French  and  Flemish  engineers  were  to  have  better 
luck.  Nicholas  Briot,  chief  engraver  at  the  Paris  mint,  having  become 
frustrated  by  the  strong  opposition  of  the  traditionalists,  was  lured  to 
Britain  in  1625  where  he  produced  the  first  significant  issues  of  milled 
silver  between  1631  and  1640  both  at  London  and  at  Edinburgh,  though 
hammered  money  still  prevailed.  With  the  seizure  of  the  London  mint 
by  the  Parliamentarians  in  August  1642  Briot's  influence  declined. 
During  the  Commonwealth,  1642-60,  practically  all  the  coins  struck 
were  of  the  old-fashioned  hammered  variety,  fittingly  of  very  plain 
design  and  carrying  their  inscriptions  in  English  rather  than  the  Latin 
still  used  by  the  Royalists,  which  smacked  too  much  of  the  papacy  for 
the  liking  of  the  Puritans.  The  Parliamentarians  were  however  very  keen 
to  proceed  with  the  various  experiments  of  the  time,  and  with  that  in 
mind  invited  Pierre  Blondeau,  engineer  at  the  Paris  mint,  over  to  London 
in  1649.  Eventually  the  mint  let  him  produce  a  small  amount  of  milled 
silver,  part  of  a  vast  treasure  captured  from  a  Spanish  ship.  His  meagre 
£2,000  worth  total  of  milled  coins  may  be  contrasted  with  the  £100,000 



worth  of  hammered  coins  produced  from  that  same  treasure  in  the  same 
year,  1656,  and  while  Briot's  coins  were  not  issued,  all  the  hammered 
coins  were  issued  as  usual.  Disillusioned,  Briot  left  for  France,  but  was 
recalled  by  Charles  II  a  few  years  later.  Meanwhile  the  Commonwealth 
government  cancelled  the  private  contracts  issued  by  the  Stuart  kings 
for  the  production  of  farthings  and  halfpence,  and  since  the  very  small 
silver  halfpence  were  issued  only  sparingly  and  for  the  last  time  by  the 
Commonwealth,  the  customary  dearth  of  small  coins  grew  to  crisis 
proportions.  These  shortages  were  partially  filled  unofficially  by  a  vast 
issue  by  merchants,  manufacturers  and  municipalities,  between  1648 
and  1672,  of  copper  tokens,  mostly  of  farthings  and  halfpence. 

With  the  Restoration  of  Charles  II  in  May  1660  the  age  of  lukewarm 
experimentation  soon  came  to  an  end  and  vigorous  preparations  were 
made  to  mechanize  minting  as  fully  and  as  quickly  as  possible.  For  the 
first  two  years  of  his  reign  it  was  necessary  to  continue  with  the 
traditional  hammered  process  and,  as  a  transitional  measure  until  such 
time  as  sufficient  of  the  new  regal  coins  appeared,  the  'illegal'  coins 
issued  by  the  Commonwealth  were  still  accepted.  Charles's 
determination  to  press  on  with  the  new  methods  was  made  plain  by  an 
Order  in  Council  of  May  1661  by  which  'all  coin  was  to  be  struck  as 
soon  as  possible  by  machinery,  with  grained  or  lettered  edges,  to  stop 
clipping,  cutting  and  counterfeiting'  (Craig  1953,  157).  Blondeau  was 
immediately  recalled  from  France  and  given  a  21-year  contract  to 
specialize  in  producing  improved  forms  of  milled  and  engrained  edges. 
For  the  major  manufacturing  processes  of  blanking,  stamping  and  so 
on,  a  Flemish  family  of  three  brothers,  John,  Joseph  and  Phillip 
Roettier,  were  appointed  to  the  Tower  mint  early  in  1662.  The  new  team 
was  quickly  put  to  work  and  produced  in  1663  the  new  £1  coin  that 
symbolized  the  true  birth  of  modern  mechanized  minting  in  Britain  — 
the  golden  guinea,  so  called  because  the  gold  came  from  west  Africa,  its 
origin  also  being  indicated  by  carrying  the  elephant  sign  of  the  Africa 
Company  (later  the  elephant  and  castle).  The  guinea  was  aptly  edged 
with  the  motto  'Decus  et  Tutamen'  -  an  Ornament  and  Safeguard  - 
believed  to  have  been  copied  from  the  clasp  securing  the  purse  of 
Blondeau's  patron,  Richelieu.  In  the  same  year,  1663,  an  Act  for  the 
Encouragement  of  Trade  was  passed  which  permitted  the  free  export  of 
foreign  coin  or  bullion  provided  only  that  a  declaration  was  made  at  the 
customs  that  it  was  actually  of  foreign  origin,  a  declaration  which  many 
traders  found  as  easy  to  make  as  it  was  profitable.  The  expectation  was 
that  free  export  would  equally  encourage  a  plentiful  import  of  bullion, 
so  necessary  for  minting  and  warring,  as  well  as  being  essential  for 



In  1666  an  Act  for  the  Encouragement  of  Coinage  was  passed  by 
which  the  age-old  seigniorage  and  other  charges  traditionally  levied  on 
customers  of  the  mint  to  pay  for  coining  were  abolished.  Henceforth 
the  cost  was  to  be  met  by  import  duties  on  wine,  beer,  cider,  spirits  and 
vinegar.  A  much  more  modern  administrative  system  thus  reinforced 
the  beneficial  effects  of  the  technical  improvements  in  the  currency.  As 
well  as  applying  the  new  methods  of  minting  to  the  silver  and  gold 
coinage,  an  important  new  step  was  taken  in  1672  when  the  first  proper 
state  issue  of  a  copper  coinage  appeared  from  the  Tower  mint,  fully 
mechanized  and  bearing  the  famous  Britannia  insignia  which  has 
appeared  on  British  coins  in  various  guises  for  over  300  years.  Britannia, 
seated  on  a  bank  of  money,  formed  the  official  seal  granted  to  the  Bank 
of  England  in  1694  and  still  adorns  the  current  fifty  pence  piece  and  the 
current  notes  of  the  Bank.  The  historian  of  the  mint,  Sir  John  Craig, 
seems  perhaps  too  readily  to  have  come  to  the  conclusion  that  'there  is 
no  foundation  for  the  statement  that  the  figure,  in  which  the  face  is 
microscopic,  was  modelled  from  a  lady  of  the  Court'  (1953,  174). 
However,  the  evidence  given  by  Ruding  in  1819  in  his  Supplement  to  his 
voluminous  Annals  of  the  Coinage  still  seems  to  be  convincing:  'These 
coins  were  engraved  by  Roettier  and  the  figure  of  Britannia  is  said  to 
bear  a  strong  resemblance  to  the  Duchess  of  Richmond,  in  our  coins 
and  in  a  Medal,  as  one  might  easily  and  at  first  sight  know  it  to  be  her.' 
He  gives  the  evidence  of  contemporaries  like  Evelyn  and  Walpole,  the 
latter  believing  that  'Roettier,  being  in  love  with  the  fair  Mrs  Stuart, 
Duchess  of  Richmond,  represented  her  likeness  under  the  form  of 
Britannia  on  the  Reverse  of  a  large  Medal'  (Ruding  1840,  Supplement, 
59).  Be  that  as  it  may,  what  is  still  more  certain  is  that  the  new  milled 
Britannia  coinage  was  so  attractive  that  instead  of  being  circulated  as 
was  urgently  required,  it  was  initially  most  avidly  hoarded,  while  the 
existing,  badly  worn,  unattractive  hammered  coins  and  tokens 
continued  to  be  used  instead.  As  a  not  unimportant  rider  to  Gresham's 
Law,  bad-looking  money  chases  out  the  good-looking  money.  Of  course 
the  new  mechanized  coins,  as  well  as  being  attractive  to  look  at,  were 
appreciably  heavier  than  the  old  coinage,  so  that  although  the  clipper 
was  made  redundant,  the  culler  and  melter  were  still  thriving.  Many  of 
the  new  coins,  especially  the  silver  coins,  disappeared  almost  as  soon  as 
they  were  issued.  Charles  II  had  successfully  revolutionized  the 
techniques  of  minting  and  had  introduced  a  freer  administration  of  the 
currency,  yet  chiefly  because  most  of  the  newly  milled  money  had 
quickly  vanished,  another  great  reform  of  the  coinage  became 
obviously  necessary  within  a  few  years  of  his  death  in  1685. 



From  the  great  recoinage  to  the  death  of  Newton,  1696-1727 

The  main  problem  lay  with  the  terrible  state  of  the  silver  coinage,  for  it 
was  still  the  old  hammered  silver  that  formed  the  bulk  of  the  currency. 
The  gold  coins  were  circulated  less  frequently  than  silver  (though  their 
circulation  was  increasing)  and  they  were  handled  more  carefully  than 
was  the  case  with  the  battered  and  less  valuable  silver.  Furthermore  the 
gold  coins  were  eagerly  sought  by  the  goldsmith  bankers  for  use  as 
reserves  for  their  deposits.  As  for  minting  base  metals  like  copper,  this 
was  considered  by  the  mint  at  that  time  and  even  as  late  as  1751  to  be 
simply  a  very  reluctantly  accepted  social  duty.  Thus  in  that  year  Joseph 
Harris,  assay  master  of  the  mint,  considered  that  'Copper  coins  with  us 
are  properly  not  money,  but  a  kind  of  tokens'  though  admittedly  'very 
useful  in  small  home  traffic'  (Craig  1953,  250).  Consequently  the 
recoinage,  when  it  belatedly  took  place  from  1696,  was  like  that  of  all 
previous  English  examples,  a  recoinage  of  silver,  still  the  major 
component  of  the  currency.  As  more  and  more  silver  drained  away  to 
Holland  and  to  the  Far  East  the  urgent  need  for  reform  grew 
cumulatively  greater.  Though,  as  we  have  seen,  the  Stuart  kings  were 
unable  to  debase  the  currency  in  England,  James  II  tried  it  on  in  Ireland, 
to  which  country  he  fled  via  France,  after  abdicating  in  December  1688. 
A  considerable  amount  of  brass  and  'mixed  white  metal'  coinage  was 
produced  by  the  Dublin  mint  before  James  was  defeated  at  the  Battle  of 
the  Boyne  on  1  July  1690.  In  the  face  of  the  heavy  military  expenditures 
facing  the  new  monarchy  of  William  and  Mary,  as  war  with  France  had 
broken  out  again  in  1689,  some  argued  that  reform  of  the  coinage 
should  be  deferred  until  the  end  of  the  war  when  the  enormous  strains 
on  the  state's  finances  would  be  alleviated.  Others,  including  the  key 
personage  of  the  Chancellor  of  the  Exchequer,  Charles  Montagu, 
argued  on  the  contrary,  that  the  successful  prosecution  of  the  war  itself 
depended  crucially  on  immediately  reforming  the  currency,  otherwise 
soldiers  could  not  be  paid  in  acceptable  coin,  nor  could  the  army  and 
navy  secure  the  supplies  they  needed.  The  army  marched  on  its  money. 

The  sharply  increasing  price  of  the  guinea  was  an  incontrovertible 
index  of  the  crisis  in  the  coinage.  Though  originally  issued  at  205.  it  had 
risen  quickly  to  215.  or  just  above  until  in  March  1694  it  rose  to  225.  It 
reached  a  peak  of  305.  by  June  1695.  Against  such  evidence  the 
procrastinators  gave  way,  and  the  decision  to  reform  was  given  by  the 
king  in  Parliament  in  November  1695.  Now  the  arguments,  which  had 
been  simmering  for  years,  about  what  type  of  reform  should  be  carried 
out,  remained  to  be  hastily  settled.  There  were  two  main  questions,  the 
first  one  being  whether  to  re-establish  the  old  standard  of  metallic 



purity,  or  to  reduce  it.  Given  the  lessons  of  monetary  history  regarding 
the  previous  slippery-slope  results  of  debasement,  those  in  favour  of 
maintaining  the  purity  won  the  day.  Secondly  there  was  a  more  even 
division  of  opinion  as  to  whether  the  weights  of  the  new  coins  should 
also  be  maintained  at  the  old  mint  level,  obviously  at  great  cost,  or 
whether  they  should  be  brought  down  somewhere  near  to  the  average 
weight  of  the  worn  and  clipped  coinage  which  formed  the  actual 
currency  of  the  day,  at  a  correspondingly  lower  cost  to  the  Exchequer  — 
but,  it  was  feared,  with  loss  of  face  and  still  more  important,  loss  of 
public  credit.  The  various  views  brought  into  the  arena  some  of  the 
foremost  members  of  the  Age  of  Enlightenment,  including  the 
philosopher  John  Locke  and  the  world's  greatest  scientist,  Isaac 
Newton,  both  of  whom  had  been  asked  for  their  views  by  the 
Chancellor  of  the  Exchequer,  Charles  Montagu.  Locke  argued  strongly, 
in  his  Short  Observations  and  Further  Considerations  Concerning 
Raising  the  Value  of  Money,  both  published  in  1695,  in  favour  of  full 
restoration  of  the  weights.  The  opposite  school  was  led  by  William 
Lowndes,  Secretary  of  the  Treasury,  and  hence  possibly  a  little 
predisposed  to  save  the  Treasury  the  very  heavy  costs  of  a  full 
restoration.  Lowndes  had  made  a  very  thorough  study  of  the  history  of 
the  currency  and  made  a  number  of  telling  points,  widely  supported  by 
the  goldsmiths  and  bankers,  for  writing  down  the  value  of  the  currency 
and  stabilizing  it  at  the  lower  level  to  which  it  had  then  fallen.  Newton 
was  in  touch  with  both  Locke  and  Lowndes,  for  both  sides,  the  restorers 
and  the  devaluers,  recognized  the  importance  of  getting  a  person  of 
such  outstanding  stature  on  their  side  -  as  have  later  historians, 
especially  since  Newton's  written  views  were  supposed,  by  Feavearyear 
among  others,  to  have  been  lost.  Thus  Feavearyear,  incorrectly  as  it 
happened,  believed  Newton  to  be  'in  substantial  agreement'  with 
Locke,  while  Craig  though  considering  that  Newton's  view  on  the 
contrary  'was  close  to  Lowndes's  of  which  he  had  doubtless  been 
informed',  nevertheless  fails  to  give  Newton  the  credit  for  stating 
unequivocally  his  support  for  devaluation  and  his  clear  statement  of  the 
deflationary  force  of  restoring  the  full  value  of  the  currency 
(Feavearyear  1963,  134;  Craig  1953,  186). 

Luckily  Newton's  'lost'  writings  on  the  recoinage  problem,  along 
with  those  of  Sir  Christopher  Wren,  Sir  John  Houblon  and  others  were 
rediscovered  in  1940  in  the  aptly  endowed  Goldsmiths'  Library  of  the 
University  of  London.  In  essence  and  shorn  of  their  particular  details, 
the  arguments  between  Locke  and  Lowndes  have  been  repeated 
frequently  since  then,  Locke  being  the  sound-money  man  conservatively 
opposed  to  the  dangers  of  what  a  later  generation  of  Americans  would 



call  monkeying  about  with  money,  whereas  Lowndes  thought  that 
money  could  in  certain  circumstances  and  within  reasonable  limits  be 
managed,  and  so  believed  the  standard  weight  for  the  pound  had  not 
been  immutably  fixed  for  all  time. 

In  substance,  though  not  in  every  detail,  Locke's  views  won  the  day, 
supported  as  they  were  by  the  Chancellor  of  the  Exchequer,  by  the 
Court,  and  by  most  of  the  landed  interest  and  conservative  opinion.  In 
January  1696  an  'Act  for  Remedying  the  ill  State  of  the  Coin'  was 
passed,  and  for  the  first  time  since  1299  the  weight  standards  were  fully 
restored,  and  for  the  first  time  ever,  the  full  costs  were  to  be  borne  by 
the  Exchequer.  Locke's  concept  of  the  sanctity  of  the  standard  as  a 
historically  given  weight  of  precious  metal  became  enshrined  in  the 
minds  of  the  authorities  and  was  largely  responsible  for  the  ease  with 
which  the  kingdom  moved  gradually  during  the  eighteenth  century 
towards  the  gold  standard,  which  it  did  not  officially  embrace  until 
1816.  The  great  'Silver  Recoinage'  of  1696  thus  turned  out  to  have 
unexpected  long-term  effects  in  paving  the  way  for  the  gold  standard. 
The  cost  of  the  reform  greatly  exceeded  the  forecasts,  coming  to  £2.7 
million  when  total  revenues  were  about  £5  million.  In  addition  hidden 
real  costs  of  some  £1  million  were  inflicted  on  those,  mostly  among  the 
poor,  who  failed  to  send  in  their  clipped  coins  by  the  due  date.  As  well 
as  the  Tower  mint,  branch  mints  at  Bristol,  Chester,  Exeter,  Norwich 
and  York  were  pressed  into  service  to  deal  with  the  huge  task  of 
recoinage.  A  total  of  £6,800,000  new  milled  silver  coins  was  produced 
during  the  three  years  of  the  recoinage  period.  The  cost  of  the  recoinage 
was  to  be  met  -  rather  perversely  in  the  Age  of  Enlightenment  -  by  a  tax 
on  windows.  Because  the  proceeds  of  the  tax  naturally  took  a  year  or 
two  to  assess  and  collect,  the  immediate  costs  were  met  in  a  variety  of 
novel  ways  highly  relevant  to  the  development  of  banking,  to  be 
examined  shortly.  Suffice  it  to  say  that  by  the  time  our  greatest  scientist 
was  promoted  from  Warden  to  Master  of  the  Mint  on  Christmas  Day 
1699,  the  enormous  task  of  the  full  restoration  of  the  coinage  had  been 
completed.  'The  recoinage  may  have  lacked  the  intellectual  depth  and 
universal  significance  of  the  Principia  Mathematical  (probably  the 
greatest  single  work  of  science  ever  published)  but  if  it  had  failed  it 
could  have  broken  the  English  economy  and  provoked  social  upheaval 
comparable  to  that  of  the  Civil  War.'1 

During  the  latter  years  of  his  period  as  Master  an  attempt  was  made 
to  reopen  the  Dublin  mint  so  as  to  increase  the  amount  and  improve  the 
standard  of  the  copper  currency  of  Ireland,  but  since  there  was  no 
agreement  regarding  who  should  meet  the  costs  nothing  came  of  the 

1  M.  White,  Isaac  Newton  (London,  1997),  p.  259. 



plan.  The  lack  of  small  money  in  Ireland  had  grown  to  such  a  pitch  that 
'manufacturers  were  obliged  to  pay  their  men  in  tokens  in  cards  signed 
upon  the  back,  to  be  afterwards  exchanged  for  money'  (Ruding  1840,  II, 
68).  A  more  ambitious  attempt  to  supply  good-quality  money  followed 
in  mid-1722  when  Parliament  granted  William  Wood  a  licence  to 
manufacture  halfpence  and  farthings  for  Ireland.  Minting  promptly 
began  in  Bristol  in  August  1722,  but  the  intense  opposition  in  Ireland  led 
to  the  minting  being  stopped,  even  before  its  most  famous  opponent, 
Dean  Swift,  uttered  his  protests  in  two  sermons  later  published  in  his 
Drapier's  Letters  (1724),  which  made  it  practically  certain  that  the 
minting  would  never  recommence.  In  his  Letters  the  Dean  'could  see  no 
reason  why  we  of  all  nations  are  thus  restrained'  from  having  their  own 
currency  produced  in  their  own  mint.  Sir  John  Craig  however  makes  the 
telling  point  that  whereas  in  1689  there  were  only  thirteen  Irish  pence  to 
the  English  shilling  (of  twelve  pence),  'compared  with  autonomous 
Scotland,  whose  currency  sank  from  parity  to  one-twelfth  of  English 
values  in  the  two  centuries  before  1600,  the  English  did  not  do  badly' 
(Craig  1953,  369).  Thus  the  Irish  poor  were  left  for  many  years  further  to 
suffer  from  their  own  tokens  and  quaintly  endorsed  promissory  cards,  a 
sort  of  anachronistic,  involuntary,  reverse  credit  card. 

During  the  twenty-seven  years  of  Newton's  mastership,  the  emphasis 
at  the  mint  changed  dramatically  from  silver  to  gold.  Indeed,  during  the 
whole  of  the  eighteenth  century  only  some  £1,254,000  of  silver  was 
coined,  whereas  for  just  the  forty -five  years  between  1695  and  1740  some 
£17,000,000  of  gold  was  minted.  At  the  same  time  much  of  the  new  silver 
minted  during  the  recoinage  had  disappeared  from  circulation.  When  the 
principle  so  firmly  established  by  the  great  reform,  namely  that  the 
pound  sterling  was  a  given  weight  of  metal,  became  linked  with  the 
revealed  coinage  preferences  of  the  public,  and  particularly  those  of  the 
bankers,  merchants  and  rich  individuals  who  could  now  afford  more 
luxuries,  then  the  gold  standard  had  practically  arrived,  silently  a  century 
or  more  before  its  legal  enactment.  Now  just  as  the  narrow  focus  of  the 
mint  was  changing  from  silver  to  gold,  so  the  wider  views  of  the 
community  at  large  were  changing  from  a  preoccupation  with  coins  into 
a  growing  appreciation  of  the  role  of  various  forms  of  paper  substitutes 
for  money  such  as  bills,  receipts,  notes,  drafts,  orders  and  cheques  and  of 
the  banking  institutions  that,  in  handling  or  issuing  them,  gave  them 
greater  acceptability  or  liquidity. 

The  rise  of  the  goldsmith-banker,  1633—1672 

Bits  and  pieces  of  the  banker's  many  functions  -  including  the  safe 



keeping  of  gold,  silver  and  deposits  of  money;  lending  out  such  monetary 
deposits  as  well  as  their  own  moneys;  transferring  money  from  town  to 
town  and  person  to  person;  exchanging  foreign  coin  and  bullion  and 
discounting  bills  of  exchange  and  tallies  -  had  been  carried  out  part-time 
as  a  by-product  of  other  trading  activities  in  various  parts  of  Britain  for  a 
century  or  more  before  recognized  indigenous  'bankers'  emerged  in 
London  by  about  the  1640s.  London,  as  by  far  the  largest  town  in  the 
country  and  with  more  than  its  fair  share  of  the  country's  wealthiest 
people,  was  a  rapidly  expanding  domestic  market.  It  was  also  normally 
the  centre  of  government,  of  domestic  trade  and,  above  all,  of  overseas 
trade.  The  development  of  financial  intermediaries  enabled  rich  persons 
to  find  profitable  outlets  for  their  surplus  funds  in  London  which 
attracted  money  in  increasing  amounts  not  only  from  the  Continent  but 
also  internally.  Provincial  writers  were  loud  in  their  condemnation  of 
London's  power  in  drawing  to  itself  the  liquid  wealth  of  the  country.  The 
growing  size  and  wealth  of  the  city  stimulated  the  growth  of  a  vast  market 
in  coal  and  food,  making  available  capital  for  further  investment  in 
agricultural  improvements  in  a  virtuous  spiral  which,  after  the  Restora- 
tion, led  to  a  sizeable  export  in  grain  and  a  corresponding  balance  of 
payments  surplus  financed  by  an  influx  of  foreign  capital.  The  greater 
degree  of  specialization  in  financial  activities  that  evolved  into  fully 
fledged  banking  was  thus  largely  the  result  of  the  insistent  demands  of 
businessmen  engaged  in  three  main  areas  centred  in  London:  the  new 
domestic  markets  in  food  and  coal,  the  rapidly  expanding  markets 
concerned  with  exotic  commodities,  foreign  exchange  and  shipping;  and, 
in  many  ways  the  most  important  of  all,  the  market  in  government  debt. 
England,  and  this  meant  mainly  London,  was  already  challenging 
Holland  as  the  world's  entrepot.  Its  financial  challenge  in  developing  its 
own  banking  expertise  was  a  natural  consequence.  Previously,  as  we  have 
seen,  the  only  true  bankers  in  the  sense  of  being  full-time  professionals 
were  immigrants,  mainly  Italian,  German  and  especially  Dutch.  It  was 
true,  as  Richards  (1929)  says,  that  'alien  immigration  helped  to  focus 
English  public  opinion  on  the  problems  of  currency  and  of  banking'. 
Although  the  initial  impetus  came  from  the  Continent,  the  embryo  capital 
and  money  markets  in  London  were  growing  so  fast  that  once  indigenous 
banking  began  to  take  root  it  made  rapid  and  sustained  progress  in  this  its 
foundation  stage  from  around  1633  onwards,  skilfully  modifying  the 
foreign  models  to  its  own  particular  requirements  until  the  first  major 
check  to  its  development  was  clumsily  administered  by  Charles  II  in  1672. 

At  the  beginning  of  the  seventeenth  century  there  already  existed  a 
variety  of  different  types  of  potential  indigenous  bankers,  including  the 
wool  brogger,  the  corn  bodger,  the  textile  merchant,  the  tax  farmer,  the 



pawnbroker,  the  goldsmith  and  the  scrivener.  In  so  far  as  simple  deposit 
banking  is  concerned  it  was  the  latter  who  first  emerged  into  prominence. 
'The  shop  of  the  Scrivener  was  the  first  English  Bank  of  Deposit',  for  it 
was  he  who  was  the  first  financial  intermediary  in  England  to  make  a 
regular  practice  of  keeping  money  deposits  for  the  express  purpose  of 
lending  to  customers  (Richards  1929).  The  scrivener  was  a  clerical  expert 
equipped  with  legal  training  or  acquired  legal  knowledge,  often  an 
official  public  notary,  who  was  customarily  employed  in  drawing  up 
contracts,  wills,  bills,  bonds  and  mortgages,  and  so  a  respected, 
confidential  adviser  normally  entrusted  with  large  amounts  of  money  - 
which  he  soon  learned  to  put  to  good  account,  picking  up  many  banking 
skills  in  the  process.  As  far  as  lending  is  concerned,  it  was  the  tax  farmer 
who  grew  to  be  particularly  prominent  in  the  Stuart  period  from  1604 
onwards.  Tax  farming  was  a  system  by  which  a  group  of  rich  individuals 
paid  the  king  in  advance  a  licence  fee  for  the  privilege  of  collecting  for 
him  the  various  customs  duties  and  taxes  due  locally,  transferring  to  the 
king  on  a  monthly  or  quarterly  basis  the  sums  so  assessed,  minus  a 
generous  allowance  for  their  own  expenses.  The  flow  of  taxes  was  thus 
speeded  up,  regularized  and  of  course  passed  through  the  hands  of  rich 
and  influential  middlemen.  In  effect  the  farmers  made  loans  to  the  king  in 
anticipation  of  the  revenue.  Their  loans  were  supplemented  by  collecting 
a  stream  of  local  deposits  as  well  as  customs  which  they  profitably  on- 
lent  to  the  king.  Thus  they  'acted  as  a  kind  of  collective  banking 
syndicate,  able  to  lend  on  a  scale  that  no  one  individual  (prudently) 
could'  (C.  Wilson  1965,  98).  The  transformation  of  the  age-old  occupa- 
tion of  pawnbroking  into  a  more  regularized  form  of  lending  was  actively 
advocated  in  England.  The  model  of  the  Italian  'montes  pietatis',  some  of 
which  grew  into  large-scale  public  banks,  was  not  followed,  though  the 
pawnbroker  was  then  and  continued  to  be  an  indispensable  lender  for  the 
poorer  sort  of  trader.  His  functions  remained  too  narrow  in  scope  and 
size  to  be  properly  considered  as  banking.  It  was  not  the  ubiquitous 
pawnbroker  or  tax  farmer  who  grew  to  be  a  proper  banker;  rather  it  was 
the  metropolitan  goldsmith,  further  emphasizing  and  reflecting  the  rising 
importance  of  London  as  a  European  financial  centre. 

The  first  stage  in  the  transformation  of  goldsmiths  into  bankers  took 
place  when  a  number  of  them  became  actively  engaged  as  dealers  in 
foreign  and  domestic  coins,  for  reasons  already  discussed.  Gradually  a 
clear  distinction  emerged  between  the  'working  goldsmiths',  and  the 
'exchanging  goldsmiths'  from  which  latter  group  the  true  bankers 
typically  emerged.  The  use  of  the  goldsmiths'  safes  as  a  secure  place  for 
people's  jewels,  bullion  and  coins  was  obviously  increased  following  the 
'seizure  of  the  mint'  in  1640  and  the  outbreak  of  the  Civil  War  in  1642. 



The  goldsmiths'  interest  in  exchanging  coinage  thus  became  linked  with 
the  keeping  of  demand  deposits  and  the  recording  for  the  customer  of 
his  'running  cash'  or  current  account.  The  insecurity  of  life  and  property, 
given  the  ravages  of  war,  plague  and  fire  during  this  period  not  only 
meant  that  customers  sought  the  security  of  the  goldsmiths  as  never 
before,  but  since  the  ordinary  demand  for  goldsmiths  to  make  objects  of 
gold  and  silver  for  the  customers  had  at  that  time  practically  ceased,  the 
goldsmiths  actively  welcomed  their  new  or  enlarged  banking-type 
business.  Their  outlets  for  lending  to  private  customers  and  to 
government  grew  to  be  so  essential  and  profitable  that  in  order  to  attract 
more  deposits  they  began  to  offer  to  pay  interest  on  time  deposits. 
Although  current  accounts  were  firmly  established  under  the 
Commonwealth,  'there  is  no  evidence  of  time  deposits  prior  to  1660' 
(Richards  1929).  Within  the  next  few  years  there  was  a  considerable 
expansion  in  this  type  of  deposit,  a  position  summarized  in  this  oft- 
quoted  comment  by  Defoe  in  his  Essay  on  Projects  (1690):  'Our  bankers 
are  indeed  nothing  but  goldsmiths'  shops  where,  if  you  lay  money  on 
demand,  they  allow  you  nothing;  if  at  time,  three  per  cent.' 

It  was  the  paperwork  associated  with  these  activities  which  formed 
the  essence  of  the  new  banking  initiatives  developed  by  the  goldsmiths 
at  this  time,  in  particular  the  cheque  and  the  inland  bill  (which  grew  in 
imitation  of  the  original  internationally  traded  bill  of  exchange),  and 
the  banknote,  which  was  an  adaptation  of  the  original  goldsmith's 
receipt.  What  started  out  simply  as  paper  records  of  credit  transactions 
and  transfer  payments  gradually  became  transformed  into  a  significant 
extension  of  the  metallic  money  supply.  To  the  goldsmiths  it  was  a 
natural  step  to  add  to  their  business  of  exchanging  foreign  coins  that  of 
purchasing,  at  a  discount,  bills  of  exchange.  All  the  merchants  of  any 
size  had  long  been  familiar  with  the  money  market  in  bills,  traditionally 
dominated  by  the  foreign  exchange  markets  in  Antwerp  and 
Amsterdam  with  literally  thousands  of  members.  The  London 
goldsmiths  now  began  to  take  over  some  of  this  business,  for  they  were 
in  a  position  to  know  the  credit  rating  of  the  issuers  and  endorsers  of 
the  bills.  They  quickly  extended  their  expertise  in  handling  overseas 
trade  bills  to  dealing  in  inland  bills  and,  of  crucial  importance  to  the 
government,  to  the  tallies  and  other  assignable  credit  instruments  being 
issued  in  a  flood  by  the  Stuarts  and  the  Commonwealth.  By  their 
dealings  in  bills,  the  general  liquidity  of  the  money  market  was 
significantly  enhanced,  an  increase  in  the  quality  again  acting  as  a 
supplement  to  the  traditional  quantity  of  money. 

The  earliest  extant  English  cheque  (now  in  the  Institute  of  Bankers' 
Library  in  Lombard  Street)  dated  1659,  is  an  order  by  a  Nicholas 


Vanacker  addressed  to  the  London  goldsmiths  Morris  and  Clayton  to 
pay  a  Mr  Delboe  'or  order'  the  sum  of  £400. 2  The  author  of  the  History 
of  Negotiable  Instruments  in  English  Law  makes  it  clear  that  such 
cheques  were  modelled  on  the  bill  of  exchange  and  that  it  was  the 
goldsmiths,  not  the  scriveners,  who  first  developed  cheques,  although 
they  were  called  by  a  variety  of  other  names,  such  as  notes  or  bills.  'It 
was  not  until  well  into  the  eighteenth  century  that  the  word  "cheque", 
or  "check",  as  it  was  then  spelt  (and  still  is  of  course  in  America),  came 
to  be  applied  to  this  type  of  instrument  on  the  analogy  of  the  real 
treasury  or  "exchequer"'  (Holden  1955). 

The  earliest  extant  English  goldsmith's  receipt  appeared  some  twenty- 
six  years  before  the  cheque  and  was  issued  by  Laurence  Hoare  in  1633.  A 
goldsmith's  receipt  or  note  was  evidence  of  ability  to  pay;  of  money  in 
the  bank.  At  first  such  receipts  were  issued  to  named  customers  who  had 
made  deposits  of  cash,  and  in  time  became  negotiable  just  like  endorsed 
bills  of  exchange.  Then  'some  ingenious  goldsmith  conceived  the  epoch- 
making  notion  of  giving  notes  not  only  to  those  who  had  deposited 
metal,  but  also  to  those  who  came  to  borrow  it,  and  so  founded  modern 
banking'  (H.  Withers  1909:  20).  This  position  was  reached  by  the  1660s. 
We  owe  our  evidence  for  the  earliest  recorded  English  case  of  a  banknote 
used  for  payment  to  that  fount  of  social  and  economic  knowledge,  the 
famous  diary  of  Samuel  Pepys,  Secretary  to  the  Navy.  In  his  entry  for  29 
February  1668  he  casually  mentions  sending  to  his  father  a  note  for  £600 
—  issued  by  the  goldsmith  Colvill.  When  the  notes  were  issued  not  to  a 
named  person  but  to  bearer,  the  modern  bank  promissory  note  had 
arrived,  at  least  in  practice  if  not  in  legal  propriety.  Difficulties  occurred 
from  time  to  time  over  enforcement  of  payment  for  endorsed  bills  and 
notes.  Lord  Justice  Holt  confirmed  the  negotiability  of  inland  bills  in 
1697  but  there  still  remained  doubt  about  the  negotiability  of  notes.  It 
required  a  special  act  of  codification  and  clarification,  the  Promissory 
Notes  Act  of  1704,  to  confirm  the  legality  of  the  common  practices  and 
customs  that  had  been  developed  by  the  goldsmith  bankers  since  the 
1640s,  and  thus  belatedly  to  remove  what  had  been  an  irritant  to  the 
bankers'  progress.  A  far  greater  obstacle  had  however  been  royally 
thrown  across  their  path  early  in  1672. 

Tally-money  and  the  Stop  of  the  Exchequer 

'To  the  Exchequer,'  writes  Pepys  on  16  May  1666,  'where  the  lazy  devils 
have  not  yet  done  my  tallies.'  We  have  seen,  in  chapter  4,  how  these 

2  Spufford  (1988,  p.  395)  dates  the  earliest  Florentine  cheque  to  1368  and  shows  they 
were  in  common  use  there  within  a  hundred  years. 



notched  sticks  came  to  play  a  greater  role  in  English  government 
finance  than  anywhere  else.  Tallies  were  reaching  the  zenith  of  their 
importance  in  Pepys's  time.  The  reason  for  the  delay  in  producing 
tallies  for  Pepys's  Navy  Department  and  for  all  the  other  government 
departments  was  the  inordinate  increase  in  the  number  and  size  of 
tallies  because  of  the  vast  increase  in  the  number  of  creditors  and  the 
larger  totals  of  individual  loans  respectively.  When  the  Oxford 
Parliament  of  1665  granted  Charles  II  an  'Aid'  or  tax  of  £1.5  million,  the 
issue  of  tallies,  made  as  usual  in  anticipation  of  the  revenue  from  this 
Aid,  was  accompanied  by  Exchequer  Orders  to  Pay,  allocating  the 
revenues  to  the  holder  of  tallies  in  strict  rotation.  Just  like  the  normal 
tallies,  the  new  orders  were  also  assignable,  i.e.  the  claim  to  revenue 
could  be  officially  passed  on  to  someone  else  on  maturity.  Furthermore 
just  as  the  tallies  had  become  negotiable  by  written  endorsement,  so, 
and  much  more  conveniently,  were  the  new  paper  orders,  and  they 
similarly  carried  interest.  These  two  features  of  assignability  and 
interest  made  the  tallies  and  orders  highly  attractive  to  the  goldsmith 
bankers  who,  buying  them  up  at  a  profitable  discount,  became  by  far 
the  major  holders  of  outstanding  government  debt.  J.  Keith  Horsefield 
in  his  'Stop  of  the  Exchequer  Revisited'  (1982,  511-28)  shows  that 
'between  1667  and  1671  the  practice  grew  up  of  issuing  orders  not 
against  the  proceeds  of  specific  taxes,  but  against  the  revenue  in 
general'  with  the  important  result  that  'Since  the  orders  were  no  longer 
tied  to  revenue  already  voted,  there  was  no  automatic  limit  to  the 
number  issued.'  Charles  had  found  the  key  to  a  new  treasure  house,  an 
elastic  increase  to  the  revenue,  and  readily  yielded  to  the  temptation 
now  available.  The  improved  liquidity  of  the  tallies  and  orders  as  a 
result  of  the  market  made  in  them  by  the  goldsmiths  virtually  turned 
them  into  interest-bearing  money.  Their  increased  use  economized  on 
scarce  coinage  and  allowed  the  small  investor  with  just  £20  or  so  to  play 
his  part  in  the  greatly  enlarged  market  in  short-term  government  debt. 

However,  in  order  to  induce  the  investing  public  in  an  increasingly 
saturated  market  to  lend  still  greater  amounts  on  the  general  security  of  an 
unbuoyant  tax  base,  the  king  (who  was  believed  to  have  authority  to 
breach  the  usury  laws)  was  forced  to  offer  rates  of  8  or  10  per  cent,  and 
even  offered  agents  2  per  cent  as  an  inducement  to  find  large  borrowers. 
Before  the  crisis  broke,  even  the  goldsmiths  themselves,  despite  the  6  per 
cent  legal  maximum,  were  offering  depositors  of  near-demand  deposits  5 
or  6  per  cent  regularly,  in  order  to  carry  out  discounting  at  very  much 
higher  rates.  Pepys  himself  was  getting  7  per  cent  from  Viner  for  money  at 
just  two  days'  notice  in  1666.  With  the  expansion  of  the  issues  of 
Exchequer  Orders  the  goldsmiths  had  reached  a  position  in  late  1671  of 



being  so  fully  loaned  up  that  they  refused  the  king's  request  for  moneys 
urgently  required  for  the  navy.  In  reply  he  issued  a  Proclamation  on  2 
January  1672  prohibiting  payment,  with  certain  exceptions,  from  the 
Exchequer.  Such  was  the  infamous  'Stop  of  the  Exchequer',  which  con- 
temporary opinion  (and  the  earlier  economic  historians)  viewed  as  having 
a  disastrous  effect  on  the  goldsmith  bankers.  This  opinion  has,  by  and 
large,  been  recently  reinforced  by  the  careful  researches  of  J.  K.  Horsefield, 
thus  correcting  the  erroneous  views  of  Richards  (in  his  Early  History  of 
English  Banking,  1929)  which  held  fashionable  sway  for  fifty  years,  namely 
that  the  goldsmith  bankers  had  not  been  too  badly  affected.  There  is  no 
doubt  that  it  was  the  bankers  who  were  left  holding  the  vast  bulk  of  assets 
made  suddenly  illiquid  by  the  Stop  in  this  grim  game  of  musical  chairs. 

The  first  result  of  the  Stop  was  the  shock  to  royal  credit.  Had  it  not 
been  for  the  Stop,  Britain  might  have  had  a  permanent  issue  of  state 
notes.  In  fact  for  a  time  Exchequer  paper  orders  had  replaced  tallies. 
But  the  Stop  revived  memories  of  the  seizure  of  the  mint  in  1640,  and 
Pepys  echoed  public  concern  in  thinking  that  it  demonstrated  'the 
unsafe  condition  of  a  bank  under  the  monarchy'.  Despite  an  immediate 
run  on  the  goldsmiths,  which  forced  them  temporarily  to  suspend 
payment,  they  weathered  the  initial  storm,  and  the  fatal  effects  on  their 
credit  took  some  time  to  take  their  toll.  This  was  largely  a  tribute  to 
their  original  strength  rather  than  to  the  exceptional  payments  allowed 
out  of  the  Exchequer,  for  in  contrast  to  the  position  in  1640,  the 
goldsmiths  as  a  group  were  never  to  be  repaid  in  full,  and  the  tardy, 
partial  repayments  that  were  eventually  made  merely  prolonged  the 
death  agonies  of  the  leading  goldsmith  bankers.  The  odium  which 
rightly  attached  to  the  exchequer  orders  was  undeservedly  but 
understandably  spread  to  include  the  notes  issued  by  the  bankers 
themselves.  'Goldsmiths'  notes  became  unacceptable  as  a  general 
means  of  payment  'partly  because  the  Treasury  itself  altered  its  habits 
and  stated  them  as  'not  now  money',  so  that  'it  was  not  until  1680  that 
they  again  agreed  to  accept  goldsmiths'  notes'  (Horsefield  1982,  523). 

The  Stop,  which  had  originally  been  intended  to  last  just  one  year, 
was  extended  for  two  more  years  and  then  indefinitely.  Of  the  total 
debt,  including  accrued  interest,  which  together  totalled  £1,314,940  in 
1677,  by  far  the  greatest  amount,  £1,282,143,  or  some  97.5  per  cent, 
was  owed  to  the  bankers.  Horsefield's  researches  further  show  that  Sir 
Robert  Viner  was  owed  £416,724;  Blackwell  £259,994;  Whitehall 
£284,866;  and  Lindsay,  Portman  and  Snow  each  between  about  £60,000 
and  £80,000.  Eight  other  bankers  were  owed  a  total  of  just  under 
£100,000  altogether.  Reluctantly  Charles  agreed  to  pay  6  per  cent 
interest  -  the  legal  maximum  -  but  this  itself  failed  to  recoup  their 



losses,  for  as  we  have  seen,  the  goldsmiths  had  themselves  been  offering 
depositors  that  rate  and  more  to  purchase  the  debt  in  the  first  place. 
After  the  Glorious  Revolution  of  1688  William  and  Mary  were  hesitant 
in  meeting  the  claims  of  the  goldsmiths,  who  were  blamed  for  having 
extracted  an  illegally  high  rate  from  the  king  and  so  deserved  to  have 
their  fingers  burned.  In  1705  the  interest  on  the  bankers'  debt  was 
reduced  to  3  per  cent,  and  to  2Vi  per  cent  in  1714,  when  the  capital  sum 
was  written  down  to  about  half  its  original  nominal  value.  The 
remaining  debt  was  then  absorbed  into  the  general  national  debt  and  no 
longer  separately  identified.  Thus  at  long  last  the  bankers  or  their 
inheritors  were  repaid  only  about  half  of  their  original  debt  and 
received  an  average  true  rate  of  interest  of  just  about  IV2  per  cent. 

No  wonder  the  Stop  had  such  a  ruinous  effect  on  most  of  the  original 
bankers.  All  six  of  the  largest  holders  of  debt  eventually  failed.  In  1684 
the  largest,  Viner,  failed,  and  then,  in  order  of  size,  Blackwell  was 
declared  bankrupt  in  1682;  Whitehall  was  imprisoned  for  debt  in  1685; 
Lindsay  absconded  in  1679;  Portman  became  bankrupt  in  1678  and 
Snow  was  in  prison  for  debt  in  1690.  Five  of  the  eight  next  largest 
debtors  also  failed.  In  addition,  according  to  Horsefield's  careful 
reckoning,  some  2,500  depositors,  including  owners  of  funds  support- 
ing a  number  of  widows  and  orphans,  were  adversely  affected.  A  few 
famous  names,  such  as  Child's  and  Hoare's  survived,  while  a  new 
generation  of  unscathed  goldsmiths  arose  to  fill  the  gaps.  Perhaps  the 
greatest  casualty  of  the  Stop  was  the  setback  to  all  the  many  plans  afoot 
in  the  1660s  and  early  1670s  to  establish  a  large  public  bank  on  the 
continental  model.  Horsefield  points  out  that  whereas  at  least  twenty 
new  companies  were  formed  between  1672  and  1694,  not  one  of  them 
was  a  bank.  Thus,  he  concludes,  'the  most  significant  effect  of  the  Stop 
was  to  postpone  for  as  much  as  ten  to  fifteen  years  the  beginning  of 
joint-stock  banking  in  England'  (1982,  528). 

Foundation  and  early  years  of  the  Bank  of  England 

Of  the  hundred  or  more  schemes  for  a  public  bank  put  forward  in 
Britain  in  the  seventy  years  after  1640  (and  most  thoroughly  analysed 
by  J.  Keith  Horsefield  in  British  Monetary  Experiments,  1650-1710), 
only  two  successfully  overcame  the  many  pitfalls  that  caused  all  the 
others  to  flounder  and  fail.  The  various  sporadic  proposals  tentatively 
suggested  in  the  earlier  years,  and  put  into  abeyance  by  the  Stop  of  the 
Exchequer,  reached  an  intensity  of  purposeful  effort  in  the  first  half  of 
the  1690s,  for  reasons  about  to  be  examined.  Before  doing  so  it  will  be 
of  use  to  taste  the  flavour  of  some  half-dozen  of  the  earlier  concepts, 


since  the  ideas  contained  therein  greatly  influenced  the  nature  of  the 
more  mature  discussions  which  reached  their  fruition  in  the  1690s. 

The  chronological  leader  is  probably  that  of  Henry  Robinson  who  in 
1641  published  a  62-page  pamphlet,  England's  Safety  in  Trades 
Encrease,  based  on  the  example  of  the  long-established  Italian  banks. 
However  when  'in  the  second  half  of  the  seventeenth  century 
Amsterdam  displaced  Genoa  as  the  world  market  for  precious  metals', 
Holland  increasingly  became  the  popular  model  for  imitation  in 
monetary  experiments  (Kirshner  1974,  227).  To  William  Potter  writing 
in  1650  the  'Key  to  Wealth'  was  to  be  found  in  a  plentiful  issue  of 
banknotes  to  form  the  basis  of  tradesmen's  credit.  Samuel  Hartlib,  in  his 
Discoverie  for  the  Division  .  .  .  of  Land  (1653),  set  forth  the  Bank  of 
Amsterdam,  with  which  British  merchants  were  becoming  increasingly 
familiar,  as  his  model  for  a  Bank  of  England,  but  insisted  that  insofar  as 
Potter's  ideas  for  note  issue  were  concerned,  'There  be  no  way  to  raise 
this  Credit  in  Banks  but  by  mortgage  of  Lands',  thus  foreshadowing  the 
land  bank  craze  of  the  1690s.  Hartlib  also  outlined  a  scheme  for 
country-wide  money  transmission  using  a  primitive  precursor  of  the 
cheque  system  (Horsefield  1960,  94-5).  In  1658  Samuel  Lambe,  a 
London  merchant,  proposed  a  Bank  in  London  governed  by  trusted 
leaders  from  the  chartered  companies,  such  as  the  East  India,  Muscovy 
and  Levant  companies,  again  in  imitation  of  the  Amsterdam  Bank. 
Probably  first  written  in  1663,  but  not  published  until  1690,  was  Sir 
William  Killigrew's  idea  for  a  state  issue  of  notes  in  anticipation  of  taxes, 
which  may  well  have  formed  the  source  for  the  paper  Exchequer  Orders 
issued  between  1667  and  1672,  described  earlier.  Also  in  the  mid-1660s  a 
number  of  writers,  such  as  Hugh  Chamberlen,  in  his  Description  of  the 
Office  of  Credit  (1665),  advocated  'Lombards'  or  'Lumbards'  where 
credit  would  be  allied  to  pawnbroking,  with  varying  emphasis  on  the 
dual  purposes  of  providing  working  capital  for  traders  and  funds  for 
charity.  All  the  main  aspects  of  the  above  proposals  came  to  a  head  in  the 
exciting  and  euphoric  experiments  in  the  dramatic  three-year  period 
from  1694  to  1696  which  saw  the  founding  of  the  Bank  of  England  and 
the  Bank  of  Scotland,  the  issue  of  Exchequer  bills,  attempts  to  establish 
the  Land  Bank  and  the  Orphans'  Bank,  the  Million  Act,  various  new 
lotteries,  poll  taxes,  excise  taxes  and  window  taxes,  and  of  course,  the 
start  of  the  great  recoinage  already  described. 

The  plethora  of  pamphlets  in  favour  of  a  public,  joint-stock  bank 
gave  rise  to  a  number  of  optimistic  projects  of  which  the  Bank  of 
England  turned  out  to  be  by  far  the  most  important.  Dislike  of  the 
usurious  practices  of  the  goldsmith  bankers  was  a  prominent  motive 
stirring  on  the  projectors  of  potential  new  institutions.  The  maximum 


legal  rate  of  interest,  reduced  from  10  per  cent  to  8  per  cent  in  1624  was 
brought  down  further  to  6  per  cent  by  the  Commonwealth  government 
in  1651  and  legally  reconfirmed  at  that  level  by  the  Restoration 
government  in  1660.  In  1690  a  proposal  to  bring  the  rate  down  to  4  per 
cent  was  lost  in  Parliament  by  just  three  votes.  There  was  a  certain 
amount  of  wishful  thinking  about  such  maxima,  but  they  did  mirror 
the  market  trend.  The  laws  were  commonly  flouted  and,  except  for 
occasional  vindictive  cases,  a  blind  eye  was  turned  on  marginal 
infringements.  The  usury  laws  were  also  more  strictly  interpreted  for 
loans  than  for  discounts.  Even  so  rates  of  discount  of  20  or  30  per  cent, 
which  were  charged  by  a  few  goldsmiths  at  times  of  crisis  when 
shortages  of  cash  were  at  their  height,  or  when  the  tallies  or  paper  bills 
being  discounted  were  of  doubtful  value  or  where  it  was  uncertain  that 
they  would  actually  be  paid  on  the  due  date,  seemed  inexcusable  to  the 
business  community  at  large  who  turned  the  deserved  particular 
condemnation  of  the  relatively  few  into  a  general  accusation  against  the 
monopolistic  power  supposedly  exerted  by  all  the  goldsmith  bankers 
almost  all  the  time.  A  new  public  bank  would  thus  achieve  the  dual 
related  aims  of  reducing  the  rates  of  interest  through  breaking  the 
goldsmiths'  monopoly.  Furthermore  these  beneficial  micro-economic 
effects  would  work  throughout  the  whole  business  world  to  bring  about 
macro-economic  gains  in  the  shape  of  greater  national  wealth.  Little 
wonder  that  commercial  interests  in  the  City  in  the  1690s  were 
optimistic  and  impatient  with  regard  to  setting  up  their  own  joint-stock 
bank,  confident  of  widespread  support.  If  the  one  essential  but  hitherto 
missing  ingredient,  namely  the  support  of  the  government  could  be 
secured,  the  battle  for  the  Bank  of  England  would  be  won. 

Thus  the  Bank  of  England  was  born  out  of  a  marriage  of  convenience 
between  the  business  community  of  the  City,  ambitiously  confident  that  it 
could  run  such  a  bank  profitably,  and  the  government  of  the  day, 
desperately  short  of  the  very  large  amount  of  cash  urgently  needed  to 
carry  on  the  long  war  against  Louis  XIV,  the  most  powerful  ruler  in 
Europe.  These  needs  were  growing  at  a  far  faster  pace  than  the  lending 
resources  of  the  goldsmiths,  combined  with  the  new  forms  of  taxation, 
largely  copied  from  the  Dutch,  could  supply,  despite  the  strong  support  of 
Parliament  (see  D.  W.  Jones,  1988).  The  tremendous  increase  in  the 
financial  demands  being  made  by  the  government  in  the  final  thirty  years 
of  the  seventeenth  century  are  shown  in  the  following  revenue  and  borrow- 
ing statistics  (taken  from  Chandaman  1975,  504).  In  the  period  1670  to 
1685  the  total  net  fiscal  revenue  came  to  £24.8  million;  it  more  than 
doubled  to  £55.7  million  in  the  following  corresponding  period  from  1685 
to  1700.  The  figures  for  net  borrowing  show  a  spectacular  seventeenfold 



increase  from  a  total  of  just  £0.8  million  in  the  first  period  to  £13.8  million 
in  the  second  period.  These  figures  indicate  not  only  the  growing  cost  of 
lengthy  wars  but  also  the  government's  need  to  rely  much  more  on 
borrowing  than  previously.  Even  more  significant  for  the  history  of 
banking  and  of  the  national  debt  was  the  need  to  be  able  to  tap  new 
sources  of  long-term  borrowing,  rather  than  simply  relying  on  the  short- 
term,  hand-to-mouth  expedients  which  the  Tudors  and  Stuarts  had  been 
forced  to  adopt.  It  was  thus  from  the  urgent  discussions  of  how  to  raise  a 
'perpetual  loan'  at  a  rate  of  interest  economical  to  the  government  and  yet 
readily  acceptable  to  the  lenders  -  because  of  the  other  benefits  attached 
to  the  deal  —  that  the  Bank  of  England  came  into  being.  If  Parliament  (and 
no  longer  just  the  monarch)  had  the  responsibility  of  repaying  a 
substantial  loan,  even  if  long-term,  then  some  future  generation  would  be 
faced  with  heavy  and  possibly  unsupportable  burdens  of  taxation  when 
taxable  capacity  was  already  thought  to  be  at  or  near  its  limit.  However,  if 
the  lenders  could  be  induced  to  make  a  permanent  loan  then  the 
additional  taxation  required  to  be  raised  at  any  time  would  be  just  a 
fraction  of  the  total  loan,  being  simply  the  annual  interest  or  service 
charge.  It  was  that  canny  and  much  misjudged  Scot,  William  Paterson, 
who  first  conceived  a  viable  plan  for  this  sprat  to  catch  a  massive  mackerel. 

Paterson  was  born  in  Tynwald  near  Dumfries  in  1658  —  incidentally 
barely  ten  miles  from  the  later  birthplace  of  the  Revd  Dr  Henry 
Duncan,  father  of  the  savings  bank  movement.  Historians  tend  towards 
hysteria  in  their  assessments  of  Paterson's  life  and  work,  for  his  gift  for 
arousing  controversy  lives  on  after  him.  To  some,  e.g.  Andreades, 
'Paterson  was  a  genius'  but  'bold  even  to  rashness',  possibly  still  the 
best  summation  of  this  complex  character.  His  contemporary,  Daniel 
Defoe,  spoke  most  highly  of  him,  as  did  his  compatriot,  Sir  Walter 
Scott,  a  view  shared  by  the  author  of  a  brief,  but  well-researched  recent 
biography  (Evans  1985).  However,  the  official  historian  of  the  Bank  of 
England,  Sir  John  Clapham,  loftily  dismisses  Paterson  as  a  'pedlar 
turned  merchant';  repeats  Macaulay's  cheap  gibe  that  'his  friends  called 
him  a  missionary,  his  enemies,  a  buccaneer';  states  unequivocally  that  'I 
think  him  an  overrated  person'  not  really  worthy  to  have  his  portrait,  if 
a  fitting  one  were  available,  in  the  Bank's  official  history;  and,  more 
seriously,  even  questions  whether  he  was  'strictly'  the  originator  of  the 
'final'  scheme  for  the  Bank,  or  was  'merely  the  mouthpiece'  of  a  City 
pressure  group.  But  this  final  scheme  was  only  one  of  at  least  three  such 
schemes  in  which  Paterson  played  the  leading  role  and  which  were  laid 
before  various  parliamentary  committees  and  Charles  Montagu,3 

3  The  Montagu  family  sold  its  Newcastle  coal  trading  business  to  the  Bowes  Lyons, 
forebears  of  Elizabeth,  the  late  Queen  Mother. 



Chancellor  of  the  Exchequer,  between  1691  and  1694,  as  is  shown 
conclusively  by  J.  Keith  Horsefield  in  his  detailed  researches  in  British 
Monetary  Experiments  1650-1710  (published  ten  years  before 
Clapham's  official  account,  but  nowhere  mentioned  by  him).  That 
Paterson's  project  was  finally  enthusiastically  adopted,  despite  his 
awkwardness,  speaks  volumes  for  its  merit,  which  was  clearly 
recognized  by  Montagu,  who  rallied  the  Court  and  Parliament  to  the 
cause,  and  by  Michael  Godfrey,  the  three  Houblon  brothers,  Sir  Gilbert 
Heathcote  and  others  who  organized  backing  from  the  wealthy  City 
interests.  These  all  became  founder  members  of  the  board  of  directors 
of  the  Bank  of  England,  but  Paterson  was  dismissed  after  seven  short 
months,  mainly  because  he  had  become  involved  with  the  supporters  of 
the  scheme  by  means  of  which  the  London  'Orphans'  Fund'  became 
transformed  in  1695  into  a  bank,  and  therefore  was  seen  by  the  Bank  of 
England  as  a  competitor  and  Paterson's  position  as  disloyal.  Paterson's 
claim  to  the  gratitude  of  Londoners  extends  beyond  the  financial  field, 
for  it  was  largely  owing  to  his  energetic  support  that  the  Hampstead 
and  Highgate  Aqueduct  Company  was  formed  in  1691  to  supply  its 
citizens  with  fresh,  clean  water.  Paterson  failed  however  in  his  visionary 
ambition  to  set  up  in  London  a  'Library  of  Commerce',  which  among 
other  benefits  might  have  provided  historians  with  a  surer  foundation 
for  some  of  their  generalizations  about  the  City  and  its  financial 
institutions,  including  the  true  merit  of  Paterson  himself. 

The  Bank  of  England  came  into  being  by  the  Ways  and  Means  Act  of 
June  1694  and  was  confirmed  by  a  Royal  Charter  of  Incorporation  (27 
July  1694).  The  Act  makes  it  clear  that  its  real  purpose  was  to  raise 
money  for  the  War  of  the  League  of  Augsburg  by  taxation  and  by  the 
novel  device  of  a  permanent  loan,  the  bank  being  very  much  a 
secondary  matter,  though  essential  to  guarantee  the  success  of  the  main 
purpose.  The  Act  was  also  known  variously  as  the  'Tonnage'  or 
'Tunnage'  Act,  because  the  taxes  were  to  be  raised  from  both  ships  and 
wines,  for  the  carrying  capacity  of  ships  was  then  commonly  measured 
either  by  the  'weight  of  water  displaced'  method,  or,  which  came  to  very 
much  the  same  thing,  the  number  of  large  casks  or  'tuns'  of  wine  (of 
252  gallons,  equalling  when  allowance  is  made  for  evaporation,  2,240 
pounds  or  one  ton  weight  approximately),  which  the  ship  could  carry. 
This  explains  the  preamble  of  An  Act  for  granting  to  their  Majesties 
several  Rates  and  Duties  upon  Tunnages  of  Ships  and  Vessels,  and  upon 
Beer,  Ale,  and  other  Liquors;  for  securing  certain  Recompenses  and 
Advantages  ...  to  such  persons  as  shall  voluntarily  advance  the  Sum  of 
Fifteen  hundred  thousand  Pounds  towards  carrying  on  the  war  against 
France'.  The  £1,500,000  was  to  come  from  two  unequal  sources; 



£300,000  from  annuities,  and  the  major  sum  of  £1,200,000  from  the 
total  original  capital  subscriptions  to  the  'Governor  and  Company  of 
the  Bank  of  England'.  In  return  the  Bank  was  to  be  paid  8  per  cent 
interest  plus  an  annual  management  fee  of  £4,000.  Thus  for  just 
£100,000  a  year,  and  some  vague  privileges  to  a  bank,  and  with  no 
capital  repayment  burden  to  worry  about,  the  government  received 
£1,200,000  almost  immediately.  The  whole  amount,  25  per  cent  paid  up, 
was  subscribed  within  twelve  days,  and  the  total  sum  was  in  the  hands 
of  the  government  by  the  end  of  1694.  This  was  an  astonishing  success 
given  the  abject  failure  of  a  number  of  rival  banking-type  institutions, 
but  not  so  surprising  given  the  speculative  boom  in  other  kinds  of 
companies  being  formed  around  the  same  time.  From  the  government's 
point  of  view  it  was  an  object  lesson  of  the  advantages  of  borrowing  as 
compared  with  taxation  to  meet  sudden  emergencies.  Paterson  was 
right  in  saying  that,  to  the  government,  the  bank  was  only  'a  lame 
expedient  for  £1,200,000'  -  but  the  government  had  other  priorities. 

During  its  passage  through  Parliament  two  significant  amendments 
were  made:  to  placate  the  Tories  the  Bank's  power  to  carry  out 
commercial  trading  was  strictly  limited,  while  to  please  the  Whigs  a 
more  important  limitation  was  placed  on  its  power  to  lend  to  the 
Crown.  The  by-laws  of  the  Bank  did  allow  for  the  sale  of  any 
merchandise  received  through  pawnbroking,  then  considered  by  some 
to  be  an  acceptable  ingredient  of  a  proper  range  of  banking  services; 
but  apart  from  an  initial  flurry,  such  operations  soon  dwindled  to 
insignificance.  It  was  quite  a  different  matter  with  regard  to  the  Bank's 
lending  to  the  government,  and  it  did  not  take  long  for  the  Bank  and  the 
government  together  to  find  ways  around  the  restriction  which  the 
Whigs  first  intended  to  fix  at  a  ceiling  of  the  original  £1,200,000  capital. 
Even  the  Whigs  relaxed  their  attitude  when  it  became  obvious  that 
Parliament  had  discovered  new  ways  of  limiting  the  powers  of  the  king. 
The  capital  of  the  Bank  was  widely  spread  by  limiting  the  maximum 
ownership  of  the  original  shares  to  £10,000.  King  William  and  Queen 
Mary  each  subscribed  the  maximum.  The  pattern  of  ownership,  with 
medium  and  large  holdings  together  taking  up  92.3  per  cent  in  value 
terms,  is  shown  in  table  6.1. 

Although  the  Bank  had  thus  got  off  to  an  excellent  start  it  was  soon 
to  experience  difficulties  so  immense  that  its  continued  existence 
seemed  very  doubtful.  The  natural  antipathy  of  the  goldsmith  bankers 
was  to  be  expected,  and  concerted  withdrawals  of  cash  did  occasionally 
occur.  Such  opposition  was  in  the  main  short-lived  and  was  less 
damaging  than  earlier  writers,  like  Clarendon  and  Andreades  had 



Table  6.1  Bank  of  England  stock  holdings,  July  1694. 



Total  value 

%  value 

No.  % 

£300  &  under 
£2,000  &  over 

561  37 
778  52 
170  11 



1,509  100 



supposed.  A  few  important  goldsmith  bankers,  especially  Charles 
Duncombe  remained  stubbornly  hostile,  but  the  value  and  convenience 
of  having  an  account  with  the  Bank  soon  began  to  be  widely 
appreciated,  so  that  in  general  the  goldsmiths  followed  the  example  of 
Richard  Hoare  and  of  Freame  and  Gould  (forerunners  of  Barclays)  who 
both  opened  accounts  in  the  Bank  in  March  1695.  In  course  of  time  the 
goldsmiths  gave  up  their  own  note  issues  and  used  Bank  of  England 
notes  instead,  to  their  mutual  advantage.  What  the  Bank  feared  most 
was  the  threat  posed  by  the  establishment  of  rival  public  banks,  though 
in  retrospect  such  fears  are  seen  to  have  been  largely  unjustified.  We 
have  noted  the  Bank's  furious  reaction  to  Paterson's  support  for  the 
plan  by  which  the  City  of  London  Orphans'  Fund  transformed  itself 
into  the  Orphans'  Bank  in  1695.  By  1700  it  had  petered  out  of  existence. 
The  Million  Bank  was  also  founded  in  1695  and  combined  its  main 
activities  of  dealing  with  lotteries  and  annuities  with  more  general 
forms  of  banking.  However  it  also  soon  relinquished  its  banking,  but  it 
continued  to  carry  on  acting  as  an  investment  fund  for  government 
securities  for  a  century. 

Daniel  Defoe's  idea  that  'land  is  the  best  bottom  for  banks'  was 
widely  and  uncritically  held.  It  was  naturally  very  popular  with  Tories 
and  landowners  who  hoped  that  by  setting  up  some  form  of  land-based 
i.e.  mortgage-based  bank,  they  would  compete  destructively  with  the 
Bank  of  England,  felt  to  be  too  wedded  to  the  Whigs,  and  at  the  same 
time  turn  part  of  their  valuable  but  fixed  assets  into  something  more 
conveniently  liquid  and  spendable.  A  series  of  such  projects  emerged, 
backed  by  impressive  personages  such  as  Dr  Hugh  Chamberlen,  John 
Briscoe,  John  Asgill,  Dr  Nicholas  Barbon  (prominent  in  insurance)  and 
Thomas  Neale  (who  had  preceded  Sir  Isaac  Newton  as  Master  of  the 
Mint).  The  two  most  prominent  among  these  schemes  merged  their 
forces  and  so  managed  to  bring  a  bill  before  Parliament  for  a  National 
Land  Bank  which  received  royal  assent  on  27  April  1696.  Its  supporters 
hoped  to  outdo  the  Bank  of  England  by  raising  a  total  subscription  of 



£2,564,000.  The  result  was  utter  fiasco.  When  the  subscription  list  was 
closed  the  total  came  to  £7,100  of  which  the  cash,  at  the  initial  call  of  25 
per  cent,  was,  apparently,  £1,775.  But  the  subscription  included  the 
king's  promised  £5,000,  so  that  when  allowance  is  made  for  this  the 
total  subscriptions  promised  by  the  public  came  to  only  £2,100  and  the 
total  cash  reluctantly  handed  over  by  them  came  to  the  derisory  amount 
of  £525.  The  boom  for  land-banks  had  burst,  and  the  concept  was  only 
to  be  revived  in  a  much  modified  form  a  century  later  when  the  first 
building  societies  emerged. 

Two  matters  of  far  greater  concern  to  the  Bank,  both  of  which 
drained  it  of  cash,  were,  first  what  was  known  as  the  problem  of  the 
'Remises',  and  secondly  'the  Ingrafting  of  the  Tallies'.  The  former 
involved  the  speedy  and  reliable  remittance  of  hard  cash  to  pay  the 
troops  in  Flanders.  This  task  was  undertaken  with  deadly  enthusiasm 
by  the  Bank's  deputy  governor,  Michael  Godfrey,  who  during  the  siege 
of  Namur  in  July  1695  and  despite  royal  warnings  against  exposing 
himself  to  unnecessary  danger,  insisted  on  standing  alongside  the  king- 
until  he  was  struck  by  a  French  cannonball,  and  thus,  to  use  Clapham's 
phrase,  the  Bank  lost  its  best  head.  But  Godfrey  had  succeeded  in 
establishing  a  system  whereby  the  army  received  its  funds  promptly  - 
yet  another  example  of  how  the  Bank  helped  the  government  in  its 
efforts  to  defeat  Louis  XIV  The  abject  failure  of  the  Land  Bank  left  the 
government  with  no  support  for  its  tallies,  which  fell  to  a  discount  of  40 
per  cent;  indeed  some  tallies  of  distant  maturity  had  become  virtually 

This  lack  of  public  confidence  in  the  new  credit  institutions 
coincided  with  the  great  shortage  of  cash  because  of  the  recoinage  and 
reacted  upon  the  price  of  the  stock  of  the  Bank  of  England  which  fell 
from  108  in  January  1696  to  only  60  by  October.  Nevertheless  in  this 
crisis  the  government  was  forced  once  more  to  turn  to  the  Bank,  which 
agreed  to  take  up  most  of  the  problem  tallies,  upon  which  the  Treasury 
agreed  to  pay  8  per  cent.  By  an  Act  quickly  rushed  through  Parliament 
on  3  February  1697  the  Bank's  authorized  capital  was  increased  by 
£1,001,171,  subscribers  being  allowed  to  pay  up  to  80  per  cent  in  tallies 
and  the  rest  in  banknotes.  Thus  instead  of  a  diffused  and  difficult 
multitude  of  public  debtors  holding  tallies  requiring  total  repayment  of 
both  interest  and  capital  within  a  definite  period  of  time,  the 
government  was  now  simply  faced  with  a  single,  more  manageable 
creditor  and  had  exchanged  a  series  of  short-term  debts  into  part  of  the 
permanent  or  'funded'  debt  on  which  interest  only  was  payable.  By  such 
means  a  sizeable  proportion  of  the  government's  outstanding  tallies 
were  'ingrafted'  into  the  Bank's  capital  stock.  In  return  a  grateful 



government,  as  well  as  allowing  the  Bank  to  increase  its  capital  -  and 
therefore  also  its  permissible  note  issue  (by  £1,001,171)  -  granted  the 
Bank  four  other  privileges.  First,  the  death  penalty  was  prescribed  for 
forging  its  notes,  i.e.  the  same  penalty  as  for  counterfeiting  the  king's 
money.  Secondly,  the  Bank's  property  was  exempt  from  taxation. 
Thirdly  the  Bank's  charter  was  extended  until  1711.  Fourthly,  and  in 
retrospect  the  most  important,  no  other  company  'in  the  nature  of  a 
bank'  could  legally  be  established  during  its  existence.  The  Bank  had 
weathered  another  storm,  and  the  price  of  its  stock  rose  almost  to 
parity,  reaching  98  when  the  Peace  of  Ryswick  was  signed  in  September 

The  Bank's  supposed  monopoly  did  not  however  remain 
unchallenged  for  long  for,  between  1704  and  1708,  a  number  of 
companies  ostensibly  not  'in  the  nature  of  banks'  began  issuing  notes, 
in  particular  the  Mines  Adventurers  Company  and  the  Sword  Blades 
Company.  Responding  to  the  Bank's  complaints,  an  Act  passed  towards 
the  tail  end  of  1708  sought  to  clarify  the  position  by  specifically 
forbidding  associations  of  more  than  six  persons  from  carrying  on  a 
banking  business,  of  which  note  issue  was  then  considered  to  be  an 
indispensable  part.  The  Act  authorized  the  Bank  to  double  its  capital 
and  granted  it  a  long-term  renewal  of  its  charter  to  1733.  Thus  in  1709 
under  its  new  Governor,  Sir  Gilbert  Heathcote,  and  with  its  total 
capital  and  note-issuing  powers  standing  at  £6,577,370,  the  Bank 
seemed  supremely  confident  and  secure.  Any  such  complacency  was 
however  quickly  banished  when  its  physical  security  was  threatened  by 
the  London  riots  of  1710,  while  its  financially  favoured  position  was  put 
at  risk  by  the  same  Tory-inspired  activities  of  the  South  Sea  Company. 
The  Bank,  said  to  be  'Full  of  Gold  and  Whiggery',  was  about  to  face  its 
greatest  threat. 

The  national  debt  and  the  South  Sea  Bubble 

The  process  by  which  the  personal  royal  debt  became  transformed  into 
a  parliamentary-controlled  public  or  national  debt  was  neither  simple 
nor  sudden,  but  formed  part  of  a  complex  series  of  hesitant  steps  over  a 
period  of  thirty  years  from  the  1660s  to  the  1690s.  We  have  already 
traced  certain  essential  aspects  of  this  development  immediately  after 
the  Restoration  of  Charles  II  in  1660  in  the  practice  of  occasionally 
borrowing,  though  for  relatively  short  periods,  in  anticipation  of  taxes 
or  'funds'  granted  by  Parliament,  a  device  which  became  both  more 
regular  and  for  much  longer  terms  after  the  Glorious  Revolution  of 
1688,  when  the  words  'the  funds'  came  to  mean  the  securities  (tallies 



and,  increasingly,  paper  documents)  issued  by  the  government  to  back 
such  loans.  It  was  not  possible  to  raise  really  long-term  loans  on 
reasonable  terms  until  parliamentary  control  over  the  monarchy  had 
been  secured  and  royal  credit  replaced  by  parliamentary  guarantees. 
Long-term  or  permanent  debt  required  as  an  essential  counterpart  the 
guarantee  of  permanent  institutions  rather  than  merely  mortal 
monarchs.  Stuart  extravagance  had  simply  made  this  lesson  all  the 
plainer.  Thus  although  the  foundation  of  the  Bank  of  England  in  July 
1694  is  rightly  taken  as  the  origin  of  its  permanent  component,  it  is  the 
'Tontine  Act',  which  passed  through  Parliament  during  December  1692 
and  January  1693,  which  strictly  speaking  should  be  taken  to  mark  the 
origin  of  the  national  debt. 

The  term  'tontine'  is  derived  from  its  initiator,  Lorenzo  Tonti 
(1630-95),  adviser  to  his  fellow  Italian,  Mazarin,  at  the  French  court 
where  he  put  his  financial  ideas  to  good  effect.  The  tontine,  which  had 
many  variants,  was  a  method  of  raising  money  from  subscribers  with 
the  rewards  weighted  heavily  in  favour  of  the  longest  survivors.  By  the 
Tontine  Act  as  modified  during  1692—3  the  government  attempted,  and 
eventually  succeeded,  in  raising  £1  million.  Its  first  alternative  was  to 
promise  subscribers  10  per  cent  until  1700  with  an  increasing  share 
thereafter  for  the  dwindling  number  of  survivors.  The  longest  survived 
until  1738  with  an  annual  pension  in  his  later  years  of  around  £1,000  on 
his  original  investment  of  £100.  Generally  speaking,  however,  this  first 
alternative  was  unsuccessful,  and  managed  to  bring  in  only  £108,000. 
However  the  government's  second  alternative,  a  simple  14  per  cent  for 
life,  proved  far  more  attractive  and  raised  £773,493.  The  remaining 
£118,507  required  to  make  the  first  £1  million  of  the  national  debt  was 
raised  later  in  1693  by  the  issue  of  tax-free  annuities,  a  rather  costly 
precedent.  A  further  Annuity  Act  in  1694  enabled  subscribers  to 
nominate  their  beneficiaries  (within  limits,  they  could  usually  nominate 
the  youngest  of  the  participants)  and  hence  was  particularly  though  not 
exclusively  taken  up  by  families.  It  raised  some  £300,000. 

The  annuity  principle  meant  that  the  government  could  raise  a  really 
long-term  loan  without  ever  having  to  repay  the  principal  -  one  of  the 
key  concepts  behind  the  scheme  for  the  Bank  of  England  —  and  also 
meant  that  it  was  faced,  depending  on  the  choice  of  scheme,  with  a 
progressively  declining  interest  payment,  thus  relieving  the  burden  on 
posterity.  In  the  same  hectic  year  of  1694  the  government  brought  in  the 
so-called  Million  or  Lottery  Act,  intending  to  raise  that  amount  by 
issuing  100,000  shares  of  £10  at  10  per  cent  with  the  added  attraction  of 
the  possibility  of  sharing  in  the  total  of  £40,000  put  up  each  year  for 
prizes.  Shares  in  these  lottery  tickets  were  subdivided  by  zealous  agents 



into  smaller  sums,  despite  which  the  scheme  failed  to  reach  the  total 
anticipated.  The  successful  launch  of  the  Bank  of  England  more  than 
made  up  for  this  disappointment.  The  lottery  tickets  and  shares  for 
both  the  Million  Funds  of  1693  and  1694  were  accepted  as  subscriptions 
to  the  capital  of  the  Million  Bank,  which,  as  we  have  already  seen,  soon 
dropped  its  initial  ambitions  to  compete  in  banking  activities  with  the 
Bank  of  England  and  settled  down  instead  into  being  an  investment 
fund  for  government  securities,  acting  as  agents  for  the  general  public, 
particularly  the  small  investor.  However  it  was  not  the  small,  private 
investor,  but  rather  the  large  joint-stock  companies  that  took  up  the 
major  portion  of  the  national  debt,  and  in  so  doing  became  powerful 
rivals  of  the  Bank  of  England  in  courting  the  favours  of  the  government, 
to  the  great  discomforture  of  the  Bank.  Prominent  among  such 
competitors  were  the  two  East  India  Companies  (reunited  in  1702),  and 
above  all  the  South  Sea  Company,  the  rise  and  fall  of  which  was  to  play 
a  crucial  role  in  the  history  of  finance  and  of  company  law,  and  hence 
had  long-lasting  effects  on  industrial  development  as  well  as  on 
banking,  not  only  in  Britain  but  also  in  the  USA. 

The  parliamentary  Act  incorporating  the  'Governor  and  Company 
of  Merchants  of  Great  Britain  trading  to  the  South  Seas  and  other  parts 
of  America,  and  for  encouraging  the  Fishery'  was  passed  in  1711.  Apart 
from  stimulating  whale  fishing,  its  main  purpose  was  to  break  into  the 
Spanish  monopoly  of  trade  with  Central  and  South  America.  Following 
Marlborough's  successes  in  the  War  of  Spanish  Succession  the  Asiento 
Treaty'  was  signed  on  26  March  1713  by  which  the  South  Sea  Company 
gained  the  right  to  send  4,800  Negro  slaves  annually  to  the  Spanish 
colonies  and  to  send  out  to  Portobello  annually  one  general  cargo  ship 
of  up  to  500  tons  -  quotas  not  regularly  achieved.  On  balance  its 
trading  activities  turned  out  to  be  only  moderately  successful,  and  its 
special  privileges  were  subsequently  abolished  by  the  Treaty  of  Madrid 
(1750)  in  return  for  a  useful  sum  of  £100,000  in  compensation,  while  its 
slave  trading  was  abolished  by  the  general  Anti-Slave  Trading  Act  of 
1807.  The  limited  success  of  the  company's  first  voyage  in  1717  did 
nothing  to  dampen  the  enthusiasm  of  its  promoters,  a  confident 
posture  increased  when  George  I  accepted  the  company's  invitation  to 
become  its  Governor  in  1718.  It  was  not  however  through  humdrum 
matters  of  trade,  but  rather  through  its  role  as  leader  of  the  speculative 
boom  during  1719  and  1720,  particularly  in  bidding  for  the  national 
debt,  that  the  company  has  made  its  mark  in  international  financial  and 
commercial  history.  The  post-war  boom  was  reflected  also  in  France, 
where  John  Law's  banking  experiments  similarly  had  their  exotic 
counterpart  in   the  Mississippi   Company.   The  failure   of  Law's 



ambitious  schemes  did  not  check  the  advance  of  the  boom  in  company 
formation  and  stock  prices  in  Britain,  where  some  200  new  companies 
were  formed  between  mid-1719  and  mid-1720.  Such  buoyant  conditions 
seemed  to  provide  the  government  in  Britain  with  an  ideal  opportunity 
to  reduce  the  burden  of  the  national  debt. 

King  George's  speech  in  opening  Parliament  in  November  1719 
therefore  voiced  the  government's  view  to  see  an  early  and  significant 
reduction  in  the  debt.  The  resulting  committee  of  Parliament  endorsed 
a  proposal  made  by  Sir  John  Blunt  on  behalf  of  the  South  Sea  Company 
that  this  company  would  take  over  all  the  state's  outstanding  debts  at  5 
per  cent  until  1727  and  4  per  cent  thereafter,  and  that  in  addition  the 
company  would  pay  the  government  £3.5  million  for  the  privilege. 
Parliament  decided  however  to  see  what  other  companies  might  offer. 
The  Bank  of  England,  fearful  of  losing  its  special  position  in  the  City, 
rashly  promised  £5.5  million  for  a  roughly  similar  scheme.  It  was  saved 
from  its  folly  when  the  South  Sea  Company  in  reply  raised  the  value  of 
its  bid  to  £7,567,000  in  return  for  converting  all  the  outstanding  debt, 
amounting  to  £31  million,  not  already  held  by  the  Bank  of  England  and 
the  East  India  Company.  In  modern  terminology,  the  South  Sea 
Company  was  offering  to  'privatize'  the  national  debt;  in  contemporary 
terms  and  methods  it  was  'ingrafting'  the  national  debt  into  South  Sea 
Company  shares.  Investors  could  buy  South  Sea  Company  shares,  then 
rapidly  appreciating  and  expected  to  pay  very  high  dividends,  with  their 
government  stock,  which  was  also  appreciating  though  at  a  much 
slower  rate.  The  higher  the  price  of  South  Sea  shares,  the  greater  the 
amount  of  government  debt  which  could  be  acquired  by  such  transfers. 
It  was  an  apparently  painless  procedure,  like  betting  with  a  double- 
headed  penny,  so  long  as  business  confidence  was  maintained. 

Credit  was  easily  available  from  the  new  financial  institutions.  The 
South  Sea  Company's  speculative  activities  were  strongly  supported  by 
the  Sword  Blade  Bank  with  which  it  shared  common  directors.  South 
Sea  Company  shares  and  those  of  other  mushrooming  companies  rose 
to  record  heights  on  a  wave  of  easy  and  cheap  credit.  Holders  of 
unglamorous  government  securities  rushed  to  exchange  them  into 
South  Sea  Company  shares.  The  speculative  mania  was  such  that  its 
shares,  which  had  traded  at  128,  moderately  above  par,  in  January  1720, 
rose  to  330  in  March,  550  in  May  and  reached  their  peak  of  1,050  in 
August.  Most  of  the  200  or  so  companies  that  had  sprung  up  in  the 
previous  twelve  months  were  not  fully  paid  up,  since  their  shares  had 
been  issued  for  quite  small  initial  subscriptions,  a  feature  which  greatly 
multiplied  the  effect  of  the  credit  base  on  the  total  volume  of  equity. 
Junk  companies  were  formed  for  the  most  unlikely  or  most  vague 



purposes  —  perpetual  motion,  coral  fishing,  to  make  butter  from  beech 
trees,  to  extract  silver  from  lead,  gold  from  sea  water,  and,  most  quoted 
of  all,  'for  carrying  on  an  undertaking  of  great  advantage  which  shall  in 
due  time  be  revealed'.  During  July  and  August  as  more  and  more  calls 
for  cash  for  the  remaining  subscriptions  were  being  made,  so  the 
business  atmosphere  began  to  change. 

Ironically  the  prick  that  actually  burst  the  bubble  was  administered 
by  the  South  Sea  Company  itself,  which  while  impatiently  awaiting 
parliamentary  legislation,  issued  a  writ  questioning  the  legality  of 
eighty-six  new  companies.  Rarely,  has  the  proverb  about  digging  holes 
for  others  been  better  illustrated,  for  by  focusing  public  attention  on  the 
weaknesses  and  illegal  status  of  so  many  of  these  new  companies,  it 
exposed  the  vulnerability  of  credit-inflated  companies  in  general,  chief 
of  which  was  the  South  Sea  Company  itself.  The  company  was 
particularly  concerned  that  the  cash  being  called  into  these  new 
companies  was  weakening  the  potential  flow  into  its  own  coffers  and  so 
might  endanger  its  grandiose  scheme  for  taking  over  the  whole  of  the 
national  debt  before  its  task  could  be  completed.  To  check  this  drain  to 
other  companies,  an  Act,  subsequently  popularly  dubbed  the  Bubble 
Act,  was  introduced,  following  the  South  Sea  Company's  urgent 
pressure,  in  May  1720  and  became  effective  on  midsummer  day.  The 
main  section  of  that  Act  set  up  two  new  insurance  companies,  the  Royal 
Exchange  and  the  London  Assurance.  The  bubble  clauses  were  tacked 
on.  They  declared  that  no  joint-stock  company  could  be  established 
without  a  charter  authorized  for  a  specified,  definite  purpose,  and  laid 
down  severe  penalties  for  operating  illegally,  ranging  from  heavy  fines 
through  forfeiture  of  all  goods  and  chattels  to  imprisonment  for  life. 
Strictly  speaking,  only  the  Crown  could  legally  authorize  a  company 
and  only  Parliament  grant  it  exclusive  privileges;  but  it  had  become  the 
general  custom  from  the  time  of  the  Glorious  Revolution  of  1688  to 
allow  unauthorized  companies  to  exist.  These  were  now  in  for  a  rude 

Financial  consequences  of  the  Bubble  Act 

Contemporary  opinion  and  later  popular  history  have  claimed  that  the 
'Bubble'  had  deep  and  widespread  effects  on  the  economic  and  financial 
development  of  Britain.  Despite  some  attempts  by  specialists  to  play 
down  its  effects,  the  popular  view  is  by  and  large  the  correct  one  and  is 
strongly  supported  by  expert  research.  The  strength  of  its  immediate 
effects  is  not  in  dispute.  Almost  before  the  ink  of  the  Bubble  Act  was  dry, 
the  rush  for  liquidity  began,  affecting  initially  the  shares  of  the  first  two 



'illegal'  companies  taken  to  court  (from  its  list  of  eighty-six)  by  the  South 
Sea  Company.  By  the  end  of  August  1720  the  rush  had  turned  into  a 
general  panic,  leading  before  the  end  of  September  to  wholesale 
bankruptcy  and  the  ruin  of  many  hundreds  of  speculators.  Already  by  2 
September  South  Sea  stock  was  down  to  700,  falling  to  200  before  the  end 
of  the  month,  and  reached  its  low  point  of  the  year  at  124  on  24  December 
-  still  significantly  above  par  and  roughly  at  the  level  of  the  previous 
January  before  the  boom  had  properly  got  under  way.  Bank  of  England 
stock,  though  much  less  volatile,  had  slumped  from  its  1720  high  point  of 
265  to  135,  its  lowest  point  of  the  year.  The  notorious  Sword  Blade  Bank 
failed  on  24  September.  This  'bank'  had  been  highly  favoured  by  the 
South  Sea  Company  despite  bitter  attacks  by  the  Bank  of  England  which 
accused  it  of  infringing  the  monopoly  of  joint-stock  banking  conceded  to 
the  Bank  of  England  in  1708  and  confirmed  in  1709.  The  Bank  was  now 
rid  of  its  most  awkward  competitor  as  far  as  its  commercial  banking 
operations  were  concerned.  The  South  Sea  Company  remained  in 
existence  until  1853  passively  handling  its  much-reduced,  but  still 
sizeable,  portion  of  the  national  debt.  But  it  had  failed  ignominiously  in 
its  bid  to  take  over  the  whole,  or  the  major  portion,  of  the  debt.  Never 
again  was  the  supremacy  of  the  Bank  of  England's  position  challenged  as 
the  major  manager  of  the  national  debt,  whether  funded  or  unfunded. 
Were  it  not  for  the  'Bubble'  British  governments  might  well  have  had  their 
own  'pet'  banks,  as  later  did  the  USA,  with  government  deposits  and 
loans  shuffled  from  one  bank  to  another  with  every  change  of 
government.  The  benefit  to  the  nation  resulting  from  the  removal  of  this 
destabilizing  competition  has  never  been  fully  appreciated. 

On  the  other  hand  the  strengthening  of  the  Bank  of  England's 
monopoly  deprived  England  and  Wales  of  strong  joint-stock  banks 
during  the  early  part  of  the  industrial  revolution  and  delayed  their  rise 
for  over  a  century.  Perversely,  however,  the  Bubble  Act,  which  remained 
on  the  Statute  Book  until  1825,  made  industry  more  dependent  upon 
banks  for  working  capital  than  they  would  have  been  if  company 
formation  had  been  easier.  The  Bubble  Act  made  it  difficult  and  costly 
to  set  up  a  company  formally,  while  the  articles  of  incorporation,  to  be 
legally  acceptable,  tended  to  stress  the  limitations  on  corporate  action 
just  at  the  time  when  the  utmost  flexibility  was  required. 

Deprived  of  equity  capital,  the  rising  industrial  partnerships  turned 
to  the  partnership  banks  which  supplied  them  with  renewable  loans  as  a 
not  inconvenient  substitute  for  permanent  capital.  As  Rondo  Cameron 
has  made  plain,  in  his  study  of  Banking  in  the  Early  Stages  of 
Industrialisation  (1967),  'the  mere  existence  of  the  Act  hindered  the 
flow  of  capital  into  industry'  and  so  'served  to  increase  the  importance 



of  short-term  finance  for  working  capital  provided  by  banking  and 
other  sources  of  credit'.  Similarly  Professor  A.  H.  John,  in  his  work  on 
The  Industrial  Development  of  South  Wales  (1950)  asks  us  'to  reverse 
the  accepted  view  of  a  rigid  division  between  the  growing  industrialism 
and  the  early  banking  system  and  to  substitute  one  in  which  the  latter 
played  a  not  unimportant  part  in  the  industrial  development  of  the 
period'.  Professor  Pressnell's  authoritative  study  of  Country  Banking  in 
the  Industrial  Revolution  (1956)  shows  how  the  banking  restrictions 
brought  in  during  the  period  1708  to  1720  'long  outlasted  any 
reasonableness  and  by  the  time  they  were  abolished  in  the  legislation  of 
1825,  1826  and  1833  they  had  done  much  harm  by  depriving  the 
country  of  a  banking  system  commensurate  with  a  period  of  rapid 
economic  growth'.  He  goes  on  to  show  how  many  industrialists  entered 
banking,  'some  to  provide  means  of  payment  for  workers  and  raw 
materials'  and  others  to  provide 

protracted  short-term  borrowing  which  added  up  to  long-term  borrowing. 
Where  deposits  were  received  from  the  public,  their  employment  in  the 
banker's  own  business  resulted  in  a  useful  compromise  between  the 
limitations  of  the  contemporary  law  of  partnership  and  the  advantages  in 
the  mobilisation  of  capital  of  the  modern  joint-stock  company. 

Thus  the  Bubble  deeply  influenced  the  form  and  methods  of  operation 
of  the  banking  system  of  England  and  Wales  (but  not  so  much  in 
Scotland)  and  also  influenced  the  operation  of  the  capital  market  and 
the  legal  structure  of  companies  in  general  for  a  hundred  years  or  more, 
not  only  in  Britain  but  also  overseas.  It  is  clear  that  both  company  and 
banking  law  in  the  USA  were  closely  affected  by  the  events  in  England. 
'Ever  since  I  read  the  history  of  the  South  Sea  Bubble,'  said  President 
Jackson  to  Nicholas  Biddle,  head  of  the  Bank  of  the  United  States,  'I 
have  been  afraid  of  banks.'  So  the  President  vetoed  the  extension  of  that 
bank's  charter  in  1832  as  being  unconstitutional.  In  France,  where  the 
corresponding  Mississippi  crisis  had  peaked  earlier,  John  Law's  banking 
experiments  perished  in  the  flames  of  inflation,  similarly  delaying  but 
for  even  longer  the  establishment  of  a  modern  system  of  banking  in 

Following  Parliament's  committee  of  inquiry  into  the  Bubble  crisis, 
which  reported  in  February  1721,  the  South  Sea  Company  was 
completely  reorganized.  Its  directors  were  heavily  fined,  imprisoned 
and  had  their  estates  confiscated,  as  did  a  number  of  others  involved  in 
the  general  corruption.  Among  the  large  number  of  influential  persons 
convicted  of  bribery  was  the  Chancellor  of  the  Exchequer,  John 
Aislabie,  who  was  expelled  from  Parliament,  imprisoned  in  the  Tower 



of  London  and  had  his  property  confiscated  to  help  to  compensate  the 
victims  of  the  crash.  His  replacement,  Robert  Walpole,  who  had 
prophesied  and  profited  from  the  Bubble,  was  brought  back  into  office, 
as  Chancellor  of  the  Exchequer  and  first  minister,  'to  save  the  country 
in  the  crisis'.  As  the  world  knows,  as  well  as  solving  the  financial  crisis 
Walpole  played  a  key  role  in  three  basic  constitutional  reforms,  namely 
the  strengthening  of  the  Treasury  as  the  predominant  department,  the 
development  of  the  cabinet  form  of  government  and  the  emergence  of  a 
prime  minister  as  'primus  inter  pares'.  Here  once  more,  partly  as  a 
result  of  the  Bubble,  we  see  fundamental  financial  and  constitutional 
changes  going  along  hand  in  hand.  Walpole  took  a  most  active  part, 
along  with  the  Governor  and  directors  of  the  Bank  of  England,  in  the 
reconstruction  of  the  South  Sea  company  and  in  the  consequent 
redistribution  of  the  major  part  of  the  company's  holdings  of  the 
national  debt.  The  Bank  took  over  nearly  £4  million  of  debt  from  the 
company  and  in  return  was  allowed  to  increase  its  own  capital  by  a 
similar  amount.  A  grateful  government  also  renewed  the  Bank's  charter 
for  twenty-one  years  from  1721.  As  in  the  original  South  Sea  scheme, 
the  general  level  of  interest  on  outstanding  government  debt  was 
reduced  in  1727  from  5  to  4  per  cent,  for  Walpole  had  always  been  very 
keen  on  reducing,  and  indeed  if  possible,  eliminating  the  burden  of  the 
national  debt.  (For  a  scholarly  account  of  Walpole's  role  in  the  'Rise  of 
the  British  Treasury'  see  D.  M.  Clark  1960.) 

It  is  perhaps  fitting  that  the  idea  for  eliminating  the  national  debt 
should  have  come  from  none  other  than  William  Paterson  who  of 
course  had  been  largely  responsible  for  the  form  in  which  it  was  first  set 
up.  His  'Sinking  Fund'  concept  was  taken  up  in  1716  by  Stanhope, 
Chancellor  of  the  Exchequer,  and  strongly  supported  by  Walpole.  They 
arranged  that  all  surpluses  from  taxation  were  set  aside  in  a  special 
fund  which,  wisely  invested,  grew  to  a  size  substantial  enough  to  reduce 
the  debt,  and  eventually,  as  the  experiment  was  repeated,  might  even 
have  eliminated  the  total  debt.  Walpole  persevered,  and  despite  having 
to  'raid'  the  sinking  fund  in  1734-5,  managed  to  reduce  the  total  debt 
by  £4  million  by  1739.  However,  the  outbreak  of  war  in  that  year  and 
the  even  more  costly  and  more  frequent  wars  which  followed  rendered 
the  sinking  fund  concept  inoperative,  until  it  was  temporarily  revived 
when  the  Younger  Pitt  set  up  the  Commission  for  the  Reduction  of  the 
National  Debt  in  1786.  In  the  mean  time  a  few  other  reforms  in  debt 
management  are  worth  noting.  Pelham  successfully  took  advantage  of 
the  low  market  rates  of  interest  which  prevailed  in  mid-century  to  bring 
about  a  large  'conversion'  of  the  national  debt  from  4  per  cent  to  3Vi 
per  cent  in  1749  and  followed  this  up  by  reducing  the  rates  to  3  per  cent 



for  a  large  portion  of  the  debt,  the  'reduced  threes',  as  they  became 
known,  in  1750.  In  1751  he  brought  together  a  whole  untidy  series  of 
annuities  into  a  single  new  general  stock,  the  famous  3  per  cent 
Consolidated  Stock,  or  'Consols'.  Thus  by  the  second  half  of  the 
eighteenth  century  most  of  the  main  aspects  of  a  modern  system  of  debt 
management  had  already  been  established,  efficiently  administered  by 
the  Bank  of  England  as  unquestionably  the  government's  main  agent, 
acting  as  the  key  link  between  the  growing  markets  for  money  and  the 
most  secure  form  of  capital  available  anywhere  in  the  world. 

The  operations  of  other  financial  institutions  such  as  the  stock 
exchange,  insurance  companies  and  friendly  societies  were  also 
considerably  affected  by  the  aftermath  of  the  1720  crisis.  Investors, 
cured  for  a  time  of  their  urge  to  speculate  in  equities,  turned  back  to 
dealing  mainly  in  government  securities,  which  continued  to  dominate 
the  capital  market  throughout  the  century.  They  also  turned  favourably 
towards  the  expanding  insurance  companies,  although  these  latter 
confined  their  operations  in  the  main  to  the  London  area.  It  was  the 
stock  jobbers  who  felt  the  full  venom  of  public  abuse  after  the  crisis, 
and  eventually  their  wings  were  clipped  by  Barnard's  Act  of  1734  which 
was  expressly  intended  'to  prevent  the  infamous  practice  of  stock- 
jobbing'. That  Act  however  soon  became  very  much  a  dead  letter  and  so 
was  belatedly  repealed  in  1867,  although  in  the  same  year  Leeman's  Act 
was  passed  to  make  sure  that  the  legal  prohibition  against  option 
dealing  in  bank  shares,  which  had  never  been  a  dead  letter,  was  firmly 
maintained.  Friendly  Societies  —  the  poor  man's  combined  savings  bank 
and  insurance  company  -  grew  steadily  more  important  throughout  the 
century,  even  though  they  were  in  the  eyes  of  the  Bubble  Act  of  doubtful 
legality,  as  were  the  early  building  societies,  at  least  until  the  Friendly 
Societies  Act  was  passed  in  1793  in  an  effort  to  clarify  the  situation  and 
give  some  limited  protection  to  members.  Another  method  commonly 
used  to  circumvent  the  Bubble  Act  was  to  arrange  for  groups  of 
persons,  sometimes  even  numbering  hundreds,  to  be  represented  by 
what  we  would  now  call  a  'front'  of  prestigious  and  highly  respected 
persons  who  acted  as  'trustees'  for  the  business  or  organization  -  a 
method  later  to  become  very  popular  with  the  savings  banks.  By  such 
means  business  carried  out  by  partnerships,  associations,  trustees, 
societies,  unions  and  other  such  groupings  in  course  of  time  'had 
become  almost  as  liquid  as  it  was  with  the  incorporated  companies' 
(Dubois  1938,  38).  Nevertheless  the  vigilance  of  the  Bank  of  England 
saw  to  it  that  banks  at  any  rate  were  strictly  limited  to  a  maximum 
number  of  six  partners  -  except  in  Scotland  where  financial  institutions 
developed  upon  interestingly  different  lines. 



Financial  developments  in  Scotland,  1695-1789 

A  series  of  innovatory  financial  developments  in  Scotland  in  the  century 
or  so  following  the  establishment  of  the  Bank  of  Scotland  in  1695  were 
to  have  far-reaching  effects  not  only  on  the  economy  of  that  country  but 
also  had  a  significant  influence  on  monetary  theory  and  policy  and  on 
practical  banking  habits  in  England  and  Wales  and  abroad. 
Consequently  Scottish  monetary  history,  interesting  enough  in  itself,  is 
of  far  greater  importance  than  might  at  first  glance  be  supposed. 
Scotland  was  the  only  region  of  Britain,  outside  the  London  area,  where 
indigenous  banking  had  made  substantial  progress  by  the  middle  of  the 
eighteenth  century.  If  we  begin  by  looking  at  the  state  of  the  currency, 
this  was  in  a  much  worse  condition  in  general  even  when  compared 
with  the  pre-1696  coinage  in  England  and  Wales,  so  that  when  banking 
grew  so  as  to  supplement  the  metallic  currency,  the  benefits  were  more 
immediately  obvious.  Furthermore  Scotland,  much  poorer  than 
England,  could  not  afford  the  luxury  of  relying  on  a  gold  currency  to 
the  extent  that  was  becoming  common  south  of  the  border.  As  in 
England,  the  first  traders  to  carry  on  banking  business  in  places  like 
Berwick  and  Edinburgh  were  the  Italian  'Lombards',  but  apart  from 
teaching  some  familiarity  with  the  discounting  of  bills  of  exchange, 
little  else  was  learned. 

Not  only  were  the  bankers  foreign,  so  was  most  of  the  better-quality 
coinage,  what  little  there  was  of  it.  As  C.  H.  Robertson  shows  in  her 
study  of  'Pre-banking  financial  arrangements  in  Scotland'  (1988), 

The  available  currency  was  to  a  considerable  degree  made  up  of  coins  of  the 
countries  with  which  it  traded  and  of  the  native  coins  of  which  there  were 
comparatively  few  in  circulation  .  .  .  Gold  and  silver  were  extremely  scarce 
and  most  payments  were  made  in  the  clipped,  worn,  crudely  made  discs 
which  passed  under  the  name  of  coin  of  the  realm. 

The  attempt  by  James  following  the  union  of  the  Crowns  in  1603  to 
unify  the  coinage  failed  dismally,  despite  the  minting  of  the  gold  'unite'. 
The  scarcity  of  gold  in  Scotland  also  prevented  the  Edinburgh 
goldsmiths  from  developing  into  banking  business  in  imitation  of  the 
London  goldsmiths  (though  John  Law's  father,  an  Edinburgh 
goldsmith,  did  manage  to  pursue  some  very  elementary  credit  business 
roughly  akin  to  banking).  Clearly  Scotland  would  have  much  to  gain 
from  supplementing  its  lamentable  metallic  currency  by  adopting  paper 
credit  and  payment  systems  such  as  those  which  had  grown  up  in 
London  during  the  seventeenth  century  and  which  had  culminated  in 
the  establishment  of  the  Bank  of  England  as  advocated  by  William 



Paterson.  This  example  immediately  fired  the  imagination  of  a  number 
of  influential  London  Scots,  who,  led  by  Thomas  Deans  and  by  the 
Englishman  John  Holland,  got  together  to  set  up  a  public  Bank  for 
Scotland  superficially  similar  to  the  Bank  of  England. 

A  rival  to  the  planned  Bank  of  Scotland  appeared  on  the  scene 
immediately,  led  by  none  other  than  William  Paterson,  who  far  from 
being  the  'founder  of  the  Bank  of  Scotland'  as  a  number  of  writers 
wrongly  persist  in  claiming,  strongly  opposed  the  bank,  fearing  that 
investors'  money  would  be  diverted  from  the  much  more  grandiose 
plans  for  his  Darien  project,  a  sort  of  Scottish  East  India  Company.  The 
Act  which  established  the  'Company  of  Scotland  trading  to  Africa  and 
the  Indies'  was  passed  successfully  by  the  Scottish  Parliament  on  26 
June  1695.  Although  its  main  purpose  was  to  set  up  a  colonial  entrepot 
at  Darien  on  the  isthmus  of  Panama,  strategically  seen  as  'the  key  to  the 
universe',  Paterson  was  also  keen  to  see  it  carrying  on  a  banking 
business.  In  the  event,  the  Darien  venture  turned  out  to  be  an 
unmitigated  disaster  involving  the  colonists  in  much  disease  and  many 
deaths  and  the  investors  in  heavy  losses.  Nevertheless  it  was  to  exert 
considerable  influence  on  the  constitutional  and  financial  history  of 
Scotland.  Despite  the  fierce  opposition  of  Paterson  and  his  friends,  the 
Act  authorizing  the  Bank  of  Scotland  was  passed  by  the  Scottish 
Parliament  on  17  July  1695.  A  new  era  in  Scottish  economic  history  had 

Thomas  Deans  and  his  fellow  promoters  in  Edinburgh  and  London 
asked  John  Holland,  a  private  banker  and  merchant  in  London,  to  draw 
up  the  proposal  for  the  bank's  charter  as  quickly  as  possible.  Thus, 
apart  from  the  Bank  of  England  being  the  obvious  and  most  recent 
model,  the  urgent  need  for  haste  to  tap  a  limited  market  for  capital  was 
one  of  the  main  reasons  for  the  similarity  between  the  charters  of  the 
two  banks.  The  capital  seemed  nominally  the  same,  at  £1,200,000 
Scots,  which  of  course  was  merely  £100,000  sterling.  Only  £10,000 
sterling  was  called  for  the  initial  subscription  and  the  shareholders 
enjoyed  limited  liability  up  to  the  total  subscription.  Like  the  Bank  of 
England,  the  Bank  of  Scotland  and  the  Darien  Company  sought  to 
attract  foreign  subscribers,  the  latter  two  companies  going  to  the  extent 
of  allowing  such  subscribers  to  be  granted  Scottish  nationality. 
Nevertheless,  to  prevent  take-over,  a  minimum  of  two-thirds  of  the 
shares  in  both  companies  had  to  be  held  by  persons  resident  in 
Scotland.  Again  like  the  Bank  of  England,  the  Bank  of  Scotland  was 
forbidden  to  indulge  in  trade  (though  the  Darien  Company  was  allowed 
to  carry  on  banking  business  as  well  as  trading).  The  Bank  of  Scotland 
was,  just  like  the  Bank  of  England,  not  allowed  to  lend  to  the  monarch 



without  the  consent  of  Parliament,  but,  different  from  the  case  of  the 
Bank  of  England,  this  also  applied  to  its  initial  capital  subscription.  Yet, 
quite  apart  from  its  much  smaller  size,  there  were  a  number  of 
important  differences  between  the  two  banks  which  grew  to  influence  in 
important  aspects  the  monetary  practices  of  the  two  countries  just 
when,  constitutionally,  they  were  becoming  more  united. 

Whereas  the  Bank  of  England  had  to  struggle  through  its  formative 
years  until  1709  when  its  monopoly  of  joint-stock  banking  was  made 
explicit  (but  was  thereafter  extended  on  or  before  expiry  well  into  the 
nineteenth  century),  the  Bank  of  Scotland  was  expressly  given  a 
monopoly  for  twenty-one  years,  but  this  was  not  extended  afterwards. 
Furthermore,  whereas  bank  partnerships  were  limited  in  England  to  a 
maximum  of  six,  there  was  no  such  maximum  limit  to  co-partnery 
under  the  distinctly  different  Scottish  legal  system.  The  much  greater 
freedom  for  joint-stock  and  larger-partnership  banks  was  to  be  a  vital 
feature  in  the  role  played  by  banks  in  the  economic  development  of 
England  and  Scotland,  with  Scotland  becoming  eventually  the  model  to 
be  copied.  The  Bank  of  Scotland  was  not  involved,  as  was  the  Bank  of 
England  right  from  its  commencement,  in  acting  as  the  major  holder 
and  manager  of  the  national  debt.  As  Professor  Checkland,  the  eminent 
historian  of  Scottish  banking  explains,  the  Bank  of  Scotland  has  many 
claims  to  uniqueness,  being  'the  first  instance  in  Europe,  and  perhaps 
the  world,  of  a  joint-stock  bank  formed  by  private  persons  for  the 
express  purpose  of  making  a  trade  of  banking,  solely  dependent  on 
private  capital  .  .  .  wholly  unconnected  with  the  state'  (1975,  23). 
Although  the  Bank  of  Scotland's  monopoly  as  the  'only  distinct 
Company  or  Bank'  was  almost  immediately  challenged  by  the  Darien 
Company,  the  bank  received  a  further  special  privilege  in  that  its  profits 
were  not  to  be  subject  to  tax  for  its  first  twenty-one  years.  Under  its  first 
Governor,  John  Holland,  it  began  to  issue  notes  -  significantly 
denominated  in  pounds  sterling  -  for  £100,  £50  and  £10,  thus 
increasing  uniformity  of  accounting  between  the  two  countries, 
although  when  it  began  issuing  smaller  notes  in  1716  valued  at  £1 
sterling  these  still  carried  the  inscription  'Twelve  pounds  Scots'. 

Hardly  had  the  bank  begun  issuing  not